Beginners should first know that the basic fundamental of stock trading is to invest in a company that you know will grow in future. It is the company’s growth that will increase your chances of making money from a stock. You need to do all possible diligence on the working of the company in whose shares you have invested. After research, you should be able to forecast its future growth potential and what all growth drivers are likely to occur.
All set to do stock trading in India, but don’t know where to start? Let us start by knowing that in India, the buying and selling takes place in only two exchanges, BSE (Bombay Stock Exchange) and NSE (National Stock Exchange). Here are a few tips that will make stock trading easier for you.
10 Tips for Effective Stock Trading
Tip 1: Invest Only the Surplus Money
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It is never advisable to invest in the stock market by selling your existing assets. This is a volatile market with various risks associated. The prospects of earning more might be exciting but the returns are not guaranteed and you may lose money easily too.
Tip 2: Avoid Buying Private Stock
Avoid buying from companies who keep their stocks, owned by a group of shareholders, private, and do not trade them on the stock market. It is risky because it requires large investment and you can only sell the stock with approval from other shareholders. Most of the times, it can turn out to be a scam as well.
Tip 3: Keep Your Broker Informed
When opting to buy or sell shares, you need to inform your broker about which shares in what quantity you wish to buy and at what price. This can be done with an online broker as well. When the shares reach the pre-defined price, the broker will make the transaction on your behalf.
Tip 4: Hold the Stocks
With many short term price fluctuations, stocks are long term investment plans. In the stock market, when prices soar much higher, more and more investors jump in to buy these stocks, this is what drives up the price. Stock prices again start falling when investors start selling the shares to make cash gains. Don’t make the mistake of selling stocks during this period. It would be wise to hold the stocks as the prices may rise back soon.
Tip 5: Learn the Technical Aspects of Stock Trading
Technical analysis of stocks is forecasting share price movements on the basis of historical data. It will help you analyse the tendency of certain stocks to behave similarly over a period of time. You need to study various parameters like trendlines, averages, patterns, oscillator, etc., as well.
Top 6: Consider Paper Trading
When you use the stock market simulator system with hypothetical account balance to trade in securities, you are paper trading. Such stock trading is done just on paper and involves no real money exchange. This is a safe option, since by doing so, you observe the market behaviour with no cost and no risk involved, while developing your own trading strategy.
Tip 7: Be Disciplined
You should always have patience as well as systematic investment plans to be able to generate good returns from the stock market. Don’t fall for panic moments, which are inevitable in this market. Reacting to the volatility in the market can put you at a loss despite the bull run in the market.
Tip 8: Use the Stop Loss Tool
Stop loss is most useful stock trading strategy, especially for those who are unavailable to monitor their stocks frequently. The stop loss order works on the principle of automatic triggering, by which the order is executed when a set threshold value of the stock price is reached.
Tip 9: Hold Diversified Stocks in Your Portfolio
Diversifying your portfolio can be done in many ways, one being holding the stocks of companies operating in different industries. This will help you minimize the risk associated with stock trading, since if one industry is underperforming, other stocks in your portfolio will not be affected. Similarly, you can own stocks in various companies of different sizes or choose both preferred (holder is entitled to a fixed dividend) and common shares (represents ownership in a corporation but holder receives money after the preferred shareholders are paid out) for your portfolio.
Tip 10: Depository Participant
The two depositories in India, NSDL (National Securities Depository Limited) and CDSL (Central Depository Services Limited), have their agents in the form of Depository Participants, who provide an account. The account is used to store the shares you hold and enables securities transactions to be processed by book entry.