Investing in the stock market is an exciting, volatile and potentially profitable venture. However, it is important to for new and wishful traders to know about some crucial things about investing/trading. The purpose of this blog post is to provide a thorough overview of the basics of stock trading and provide novice investors with information to make informed decisions.
Understanding Shares:
Every share has a story behind it, a company behind it. It is important to understand what that company is doing. When we buy a share, we are buying a part of a business. The stock market just provides us a platform to buy or sell these shares.
Set investment goals:
Before starting your investment journey, it is important to define our investment goals. If you are looking for long term growth, then you have to take the path of investing and if you are looking for short term gain, then you will have to consider trading as an important activity.
Investment research and analysis:
While investing, take a close view of the financial statements of a company. Financial statements are reflections of the financial condition of a company. Comparing different companies on factors like growth, profitability, management, market share etc. is a good method to find out attractive stock opportunities.
Types of exchange orders:
There are different types of orders you can place, namely Market order (which makes you buy/sell at the current market price), Limit order (you quote the price at which you wish to buy/sell), Stoploss order (activates an order only when it crosses a certain threshold price), Stop-limit order (a combination of stoploss order and limit order, where we set both the trigger price for order activation and limit price for buy/sell).
Diversification:
Investing is all about risk and returns but most people focus only on returns. But it is crucial to be aware of and to focus on risk. Diversification is one such method which is very useful is managing the risk of our investments. By not putting all our money into one stock or one asset class and dividing it significantly into different stocks and asset classes, we can ensure that our money is safely distributed.
Risk management:
Investors who focus on risk management have better chances to survive and thrive in the markets for long run. So, managing risk using different methods like proper stoplosses, money management, diversification and most essentially, more money than you can afford to lose proves to be very helpful for new traders.
Market volatility and emotions:
Volatility is an inseparable part of the stock market. If you wish to make get long term success in stocks, embracing volatility is important. Being able to take decision dynamically, avoiding impulsive decisions based on emotions or short term market trends, is crucial to become a disciplined trader/investor.
Learning from mistakes:
The process of becoming a successful trader is a life long process of learning. Stock market is the best teacher, it teaches us new things everyday. Losses are also a part of this learning process. Keep evaluating your investment decisions, money management principles, try to keep reading and analyzing different market behaviours to become a better & better trader with time.
Conclusion
Stock trading is an exciting journey but it is very important to choose the right direction. The right path is to educate yourself, create a discipline, manage risk properly and to keep learning from your mistakes. One should know these basics of stock trading. Building wealth through stocks is a long term and gradual process but it becomes simple as a trader/investor spends more and more time in the market and goes through different market cycles.