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Beginners Guide for Share Trading and Investment

Beginners Guide for Share Trading and Investment

The online share market is not just a complex place but also extremely competitive. Is there a share market tutorial for beginners where one can learn share market basics? The best way to learn the nuances of the share market is by trading in the real market with real money.

You need to learn along the way. There are many books and articles on how to invest in shares in India for beginners or how to invest in stock markets for beginners. Eventually, you need to learn the market through live trading and investing only. Here is a rudimentary guide for share trading for beginners…

Know Why you are Trading and Why you are Investing

Trading is more for the short-term opportunities that you can profit from. Investing is more for the long term and is intended to help you create wealth. When you trade, think and act like a trader.

Don’t become an investor by default just because the trade did not work in your favour. Conversely, when you are investing, don’t get carried away by short term noise. Think how you can create wealth in the long run.

Focus your Activity in a Handful of Stocks

This is a very important aspect of trading. Don’t believe that you need to trade all the 3000 stocks that are listed on the exchanges. You should keep your attention span focused on not more than 20-25 stocks. Both trading and investing are specialized games and you can only win the game by mastering the stocks you are investing or trading in.

When you trade you need to understand volume trends, F&O action, price momentum etc. When you invest you need to understand income statements, balance sheets, news flows, cash flows, management quality etc. You obviously cannot keep a tab on too many stocks.

There is a Time to Buy, aTime to Sell and a Time to do Nothing

Quite often traders and investors tend to forget that doing nothing in the market is also an important decision. If the market gets too volatile to trade then you must take a conscious decision to stay out of the market. Nobody made money consistently by fishing in troubled waters. You need to have the discipline to stay out of the market for some time.

Trading is more about Managing Risk Than About Managing Returns

Most traders wrongly believe that trading is about chasing returns. That is not correct! As a trader, your primary task is to manage your risk. How much of your capital you are willing to risk in a trade? How much capital you are willing to lose in a day? How do you want to place your stop loss?

As an investor how do you want to protect your profits? Are the valuation levels suggesting shifting out of equities? These are all discipline related issues and your primary focus should be to have discipline when comes to managing risk. Returns will automatically follow!

Execution and Costs Do Matter a Lot

When you trade, your costs can make a big difference to your profitability. Your trading costs include brokerage, STT, GST, stamp duty, illiquidity costs, spread costs, demat charges etc. Some costs may not be too obvious. Similarly, if you are an investor then frequent trading imposes an added cost on you.

When you evaluate your trading performance, look at it vis-à-vis all the costs that are debited to your ledger account. That will give you the right perspective of how efficiently you are trading.

There is a Difference Between Book Profits and Booked Profits

There is a saying in markets that even the best of trading ideas can only be monetized only when the shares are sold. It is good to see the notional profits (book profits) in your trading account or in your demat account. Especially,

when it comes to trading, a bird in the hand is worth two in the bush. Make it a discipline to keep booking profits at regular intervals. With respect to investments, explore ways to lock in profits using trailing stop losses or derivatives.

All the above points are just a starting point. You will get the real insights on trading and investment only when you actually start doing it live in the market!

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