Stock Trading Guides for Beginner
Stock trading is all about getting your basics right. If you are getting your
stock trading basics right and your stock investment basics right then you
stand a much better chance of being profitable. Stock market trading for beginners
is as much about understanding the nuances of trading as it is about getting your
trading and investment psychology right. Here are some generic stock market tips
for beginners and some stock market trading tips for beginners as your embark on
exciting trading journey along the way.
Understand your Risk Tolerance
As has been reiterated time and again, you need to understand how much you are willing
to risk in the market. You need to know your risk tolerance in terms of the capital
you are willing to risk, the maximum risk you are willing to take on a trade or
the maximum risk you are willing to take on a particular trading day.
Learn to Control your Emotions inTrading
This may appear to seem easier said than done. After all, you are taking positions
in a volatile market with real money that belongs to you. But you need to remember
never to panic. When you panic while trading, you end up subsidizing the other trader
who does not panic; so you will eventually be the loser. Also greed and fear are
common emotions in trading. Normally, traders tend to get greedy at the top and
fearful at the bottoms of the market. In reality, you should be greedy at the bottom
and fearful at the top of the market.
Avoid too Much Leverage
When you trade, you are taking a leveraged position. For example, brokers allow
you to trade on margins. You can put a margin of Rs.50,000 and trade up to, for
example, Rs.250,000. That is five times leverage. However, you must not leverage
just because your broker is offering the leverage. Ideally, you should leverage
if it is worth it and you can afford it. Remember, leverage is a double –edged sword.
Just as it can multiply your profits, it can also multiply your losses.
When you trade you need to define the maximum loss that you are willing to take.
Normally, your stop loss is below the buy price or above the selling price. Stop
losses are a protection against unlimited losses and are placed around the supports
and resistance levels.
Keep your Positions Diversified to Reduce your Risk
This trading tip applies to your trading and to your investment activities. When
you are investing, ensure that your investments are spread across sectors and themes.
That will ensure that you are not overexposed to risks. Secondly, when you are trading
ensure that you are not trading unidirectional. If you are substantially long on
rate sensitives or if you are short on consumer durables; then you are running a
Set your Positions according to your Intent
Your positions must be in sync with your intent. What does that mean? If you have
a long term investment perspective in mind, then don’t look at the short term triggers.
Similarly, if you are looking at a short term trade then don’t worry about value
investing but focus more on charts and news flows. That is a basic trading rule
you always need to adhere to.
Trend is your Friend and Stay on the Right Side of Momentum
The market always tells a story because the markets know and understand certain
things which you may not be aware of. If you are a trader, then your job is to understand
this trend and trade accordingly. There is no point in trying to outsmart the market.
A trader needs to understand that nobody can consistently outsmart the market. Therefore,
the basic lesson you need to learn as a beginner is to respect the market trend
and trade according to that.
Stop Loses and Profit Targets are your Lethal Weapons in Trading
The basic rule of trading is that it is better to be wrong in a small way than be
wrong in a big way. That is why stop losses are so important. They protect your
capital when the market moves against you. Similarly, profit targets are meant to
ensure that your capital is constantly churned and your liquidity position is not