Beginners Guide - For beginners in stock market in NEW TO TRADING & INVESTMENTS? - For someone, who has just opened the demat/trading account for first time, anxiety will be high. Most will transfer few ...
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For beginners in stock market

  1. For beginners in stock market

    For someone, who has just opened the demat/trading account for first time, anxiety will be high. Most will transfer few thousand and buy some shares or do one intraday trade. Loss or profit wouldn't matter when compared to the thrill the first trade gives.

    Traders: Most of the new traders will start with less capital or quantity and will attempt to implement the strategies. Initial trades will be successful giving more confidence to the trade that the strategy is working. Few will do back testing as well. So the decision will made to take a plunge with more capital. Nothing wrong as this is human urge to trade. One would say that back testing is done, paper trading is done and so it will work in market in real. But with huge capital in trade, even small loss in percentage terms will look big in absolute terms. There comes panic and booking out even before the stop loss is hit. Same trader would have hold on to the position till the SL is hit had the capital deployed is small. We are used to see absolute numbers. As a trader, never go by absolute numbers and use percentage points to define the target and stop loss. Trading with bigger capital in initial years is not recommended as one loss can wipe out good amount of capital if stop loss not properly used. Small first trades will be profitable while next big trade will get into loss wiping out all profits got earlier. Traders who don't learn from the mistake, get out of market permanently labeling it as gambling while those who understand what went wrong and corrects the mistake, lasts longer in market. Being successful trader depends on how disciplined one is in the trading. Not just picking the correct direction, there are other aspects that determine the success in trading. Being disciplined, following trade plan, taking decision backed by stats and not by urge/emotions etc.

    Investors: General misconception that most has is, one can get more profit by buying into large quantities of company whose share price is less in absolute terms than buying lesser quantity of share of company that is traded with higher price. One has to understand that share price as a number has nothing to do with returns. Buying 100 quantity of 10rs share for 1000 is same as buying 1 quantity of 1000rs share. It is the quality of business and management, environment in which they operate, competition they face, operational performance, cash generation ability etc determine the returns from equity investment. Another misconception is that high PE stocks are costly and low PR stocks are cheap. Though mathematically correct, a company trades at higher PE for a reason (Eicher, Bajaj Finance, Avenue super market etc as of now). One has to understand why. Please don't fall into trap of low PE stocks. In PE calculation, one has to understand what earning is used, either trailing twelve months (TTM) or forward EPS estimates. One has to compare like to like. One should have reasonable returns expectations from a portfolio. If not is not picking quality companies in portfolio, it is first step towards wealth destruction.

    Capital deployed: Never borrow and use that to trade or invest. Some tend to do this and get into deeper trouble. Use only part of savings in market and not all of them.

    Learning: Everyone goes through an initial phase of small profit and bigger loss before either completely exiting market accusing it be gambling or learning from mistakes and turn profitable or repeating the same mistakes to destroy life. Please remember, profit in trade for one means there is someone making that loss at other end. In trading, money is exchanged hands among traders, neither made nor lost.

    Making money in market is not feasible for everyone. All can try, if it doesn't work out, its ok, there are many other avenues to earn. First try to understand the strength and weakness individually and the style of trading that suits. If nothing is working out, quit before losing big.

  2. yes, that is right.
    Thank you for this brief description.

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