How To Trade In The Share Market

Serious money is made by exiting your stock holdings by listing your business in the stock-markets or simply by quietly acquiring the stocks of a few select companies and sitting on them for a few decades.

But if like me, these days you have been receiving calls and tips from multiple brokers a day, and can’t refrain from trying to make a few quick bucks by trading, here are some good tips, learnt the hard way:

First do your financial planning in detail so that you know what your commitments are, as well as the maximum money you can afford to lose. Trading gone bad, can and does wipe out your capital and it doesn’t make sense to let greed make you stake or leverage more than you can afford to lose.

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 2-3 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 2-3 weeks.

After financial planning, you know how much capital is available,and that should help you decide how many opportunities you can pursue.Only those with a capital of at least Rs 2 lakh can trade for a meaningful gain. 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. Ten to fifteen times this capital produces better results. But if you are any good at trading, you will be able to win this higher capital from the market itself.

Next identify a few stocks and focus on them.The stocks you select should have enough volumes to be tradable. They should have a minimum daily average volume of 5,00,000 shares. For those just starting, trading Nifty-50 stocks is a good idea. You should prefer shares with a minimum price range of Rs 10. This means the average difference between a stock’s intra-day high and intra-day low should be at least Rs 10.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. If the market falls 2%, the stock will also fall 2%. One can look at a maximum beta of 2 or 2.5, but not more than that.

9.30-11.30 am is a good time to trade in the Indian stock market because of volatility.

Before trading, be sure to know the supply and demand of individual stocks. If the number of shares up for sale is more, don’t 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.

Also avoid trading on news which is out in the market. It takes a few minutes for a stock price to adjust to any news.

Never forget you are trading to make money, not to prove you are right. Disaster strikes when you forget this. 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 100 and set a stop loss at Rs 95. 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.Always stick to stop loss. Never go against the market trend and never talk yourself into considering a stock you bought to trade ,as part of your investment portfolio. Also as a trader never average out. When the price of a stock starts falling, never buy more to average out. It’s a losing trade. The trade is going bad. Better wait for the right time to enter again.

Also book profits regularly. When you are making money, don’t let greed make you wait for more and lose the chance to exit profitably.

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. Stock exchanges, such as the Bombay Stock Exchange and the National Stock Exchange, offer courses in technical analysis.

So good luck! Happy Trading. Go make some money with your trading account.