How many times have you bought a stock on someone's advice to make a quick buck and waited for months, may be years, to just recover your cost? Share trading, experts warn, is a risky game. However, it's possible to play it smartly and make a quick buck as well, they say.
Sandeep Nayak, executive director and chief executive officer at Centrum Broking, says, "The main attraction of trading is that people feel they can make quick money. But there are no free lunches. Trading requires a lot of discipline. While traders do make as well as lose money, whether this activity suits you depends on your financial position. However, in India, retail investors mainly trade in stock futures and options due to sheer volumes.
Trading means buying and selling a stock the same day or holding it for just days. The former is called intra-day trade. The latter is called swing trade. Positional trade generally involves taking a longer position and holding a stock for weeks. Safety tips for dealing with market volatility This depends to a large extent on how much capital is available, how many opportunities you can explore and your knowledge of technical analysis.
SKILL SETS While any recipient of the so-called 'hot tip' can trade, making money consistently is possible only when you have sufficient knowledge of the markets and skills for technical analysis, which is the science of forecasting prices based on historical data. Depends on market conditions Niraj tried his hands at accountancy and management consultancy before getting interested in the markets. He joined Rare, an asset management firm, in June and took up trading seriously in May He is passionate about trading and does not focus too much on the long term.
When he focuses on the latter, that's when disaster strikes The software for technical analysis is available on the internet for free, but with limited features. Professional software capable of highly detailed analysis comes at a price. One should either have knowledge of technical analysis and the market or consult the relationship manager of the brokerage firm, says Gopkumar. Stock exchanges, such as the Bombay Stock Exchange and the National Stock Exchange, offer courses in technical analysis.
Another institution which offers such courses is Online Trading Academy. Trading is simple, but not easy. You have to be disciplined. That is because in most cases, when people are making money, greed makes them wait for more, and so they don't book profits. When prices fall, fear makes them sell fast. If losses are not a deterrent and the market's roller-coaster movements give you a high, here are a few habits and skills that can help you stay on the right track.
These are useful for day traders as well as positional traders. The key to success is a stop-loss order. Stop loss helps a trader sell a stock when it slides to a certain price. Suppose you buy shares of company A at Rs and set a stop loss at Rs When the price falls to Rs 95, the shares will be sold automatically.
This means you have limited your loss to Rs 5. While entering a trade, you should be clear about how much loss you are willing to accept. Trading is a skill, says Derek. You should also know how to spot amateurs and trap them and how to take positions. Also, you should be quick to get in and very quick to get out," he says. A lot of amateurs in the market buy at a wrong point. A skilled trader identifies such people and takes an opposite position to trap them. One should identify a few stocks and focus on them.
Only those with a capital of at least Rs 2 lakh can trade for a meaningful gain. However, this capital should not be borrowed and should not be part of your core savings. People can also trade with less, but volumes are important. So, a certain minimum capital is a must. A stock should have enough volumes for it to be tradable. According to Zelek, it should have a minimum daily average volume of , shares. For those just starting, trading Nifty stocks is a good idea, he says. What should you do with a share which has high volumes but not much price movement?
You should prefer shares with a minimum price range of Rs This means the average difference between a stock's intra-day high and intra-day low should be at least Rs Depends on market conditions Bharat has been a keen follower of the markets since childhood as elders in his family were serious investors. Bharat set up a partnership firm dealing in electronic items before becoming a franchise of a brokerage firm in June Never go against the market trend and never mix your trading portfolio with your investment portfolio.
See an opportunity in every market move. Look for the most volatile market timings. Any stock with a positive beta of 1 or above is good. A beta of 1 means the stock will move in line with the market. One can find a stock's beta in the trading software.
One has to know the supply and demand of individual stocks. If the number of shares up for sale is more, one should not buy the stock, and vice versa.
To know if the sell quantity is more or the buy quantity is more, one cannot rely on the bid and ask numbers available on the screen. Only a technical analysis can help identify the supply and demand in individual stocks, says Zelek. Never trade on news which is out in the market. It takes a few minutes for a stock price to adjust to any news. When the price of a stock starts falling, people buy more to average out.
In trading, it's a strict 'No'. It's a losing trade. The trade is going bad. I would rather wait for the right time to enter again," Makwana says.
Do you think you can immediately start trading with all these tips? The answer is "NO". One needs to develop a few skills, including the ability to understand technical analysis. Money Today will discuss in detail how one can trade using some charts and technical analysis in future issues. Previous Story Investing in Asia can make you rich. Subjected to 'unprovoked rudeness' by IndiGo staff: Twitter is testing its new 'Bookmarks' feature; could roll out soon Xiaomi Mi 7 to launch with Snapdragon , bezel-less screen, dual camera: When he focuses on the latter, that's when disaster strikes.More...