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Step-by-Step Guide for Beginners to Make Money in Stock Market

Step-by-Step Guide for Beginners to Make Money in Stock Market

Is possible for beginners in the stock market to make money? It is not too difficult if you adopt a very well thought through and calibrated approach to stock markets. Beginners should start off with investing in their circle of familiarity and then they must make it a point to carefully monitor their investments over a period of time.

Why making money is important in share market

Why is it so important to make money in the stock markets when you start off? That is what gives you confidence. Unless you seeing money being made in equities (however small) you will not get the required confidence to invest in the markets! When you make profits in the market, you have the flexibility to use the same to fund fresh positions. Also the profits that you book help you to monetize part of your investments. As an investor, your first steps must be to learn how to maximize your ROI. Earning 10% in a month is more significant than 25% in a year.

How to go about making money in markets as a starter

Bet on stocks where there is momentum
You may find the NTPC is a great stock but should you bet on NTPC or on a Hindustan Unilever? The question is not about fundamentals but about momentum. At the current juncture, consumer stocks have the momentum and power stocks don’t. As a beginner, you must always stick to where the momentum is and not where you see long term value.

Keep stop losses to protect losses
As a beginner you need to be very particular about stop losses. Why do you need stop losses in investing? When you buy a stock and it turns out you are wrong, then you need an early exit. You are just testing waters with limited capital and the last thing you want is to get stuck to positions that are not going to move. Take you money into productive avenues.

Also keep profit targets and stick to them
When you are a starter in the markets, don’t worry too much about the Buffettian approach to investing. Long term investing an always follow later. The idea of a profit booking target is that you get your profits out and plough it back. Now you have two sources of funds; own capital and profits. You can afford to take bigger risks on profit component. That is how it begins.

Adopt a phased approach to investing in stocks
The phased approach may sound very boring and drab but it really works. That is because it manages to make the average cost work in your favour. By adopting a phased approach, you make time work in your favour. This is also ensuring that you have the liquidity when the stock is available at lower rates. The way to go about is to set a target price and gradually phase your investments in the stock across these price points.

A good investor has to also be a good researcher
Remember one basic rule that investing is not rocket science. It is a lot of common sense based on a body of knowledge. Each stock has a company and a business behind it and hence you just need to understand the business. That is all. You will hardly find a good investor who is not good at analyzing stocks. Learn to read the relevant information like stock exchange filings, latest news, earnings announcements, industry disruptions etc. You can get a lot of investment wisdom without relying on tips and WhatsApp forwards.

What makes you lose money as a beginner in markets

As a beginner in the stock markets, ensure that you do not lose big money. There are two basic things you must refrain from to avoid the big losses.

Eagerness to take positions quickly
Don’t built large positions where you cannot manage the risk. For example, if you have an allocation of Rs. 1 lakh don’t use that as futures margin to take a position worth Rs.5 lakh. That kind of leveraging can make a mess of your investments and disproportionately increase risk.

Jumping into every market correction
In stock markets it is good to be opportunistic but you cannot be jumping into every correction in the market. You don’t even know if you are in the midst of a temporary correction or a long term correction. Avoid just jumping in and buying on every dip; something a lot of starters do.

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