Investing in stock markets is a much different procedure than Investing in a real estate, Land, making FD, or buying any life Insurance Policy. The sole motive is same in all types of investments i.e you have to select the best one option and have to earn the best possible return. But stock market is a much complex thing to understand. For selecting best stocks and to avoid many losses, you have to look upon various things and facts.
How to make money in stocks?
To make better trades and avoid meaningless losses in share market, you must remember some important facts and points about market. Some of them have been discussed below to help you in earning more money from share market.
Use Stop loss to cut Loss making trades!
Sometimes, what happens, Retail Investors are able to exit or square off those positions easily where they are earning some money whether it is a gain of just Rs 1 or Rs 10,000.
But when their trade becomes negative one and starts extracting money/capital from his/her account, it sometimes become very difficult for them to square off their position.
Few are able to even cut their positions in Losses. However, a big portion/part of public still use to carry forward such loss making positions month after month in the hope of turning this loss into some profit.
Those who know how they can handle such loss making positions is good. But those who are willing to cut their loss making or even Gaining positions should use stop loss!
Stop loss is a kind of Elder Family Member for you which helps you in not exceeding your financial limits and live a simple but happy life. Once you have set the stop loss in your trade whether it is for to avoid any higher risk or lock in some of your profit, then you have just need to wait for the closing of market and to see whether your stop loss was triggered or not during market hours. It will reduce your chances of being falling in a situation of dilemma of what next should you do with your stock after breaching of your levels.
Using stop loss in every condition may not possible because of volatility level which differs from time to time during a particular period of time. But if you will use it in accordance to your condition and level of volatility, you would find it very helpful in many cases.
Make a Good Portfolio only when it is suitable for you also!
Making a good portfolio is the best strategy to enjoy the multiple benefits of Stock market. But it is not suitable for every type of investor!
In the beginning, when the retail Investor enters market with a fewer money in their hands like around Rs 5000, their main aim or motive is to multifold this initial amount of money in a very short period of time. But to remain confident from the starting of your journey, it is also necessary to avoid situations like loosing 80-90% of your money in just 1-2 months. For this, investors will have to use both the initial strategies combinedly i.e little safe play and a high value bet also.
For the multifold returns, the most appropriate step investor should take or can take is to buy shares of only two or maximum 3 companies through using your whole money. If you will make a portfolio of like 5-8 stocks from just Rs 10,000 or even from Rs 30,000, you would earn much lesser returns as compare to others.
Portfolio of 5-8 stocks or 8-10 stocks is useful for only those who wants to remain in a safe side and carries a long-term view.
So, for most of the times, it is a better strategy for you to try yourself in Stock market with a bigger bet, bigger risk and bigger strategy rather than making just a portfolio with higher number of stocks in it.
Good time comes for almost every stock, but it takes time!
On NSE, there are more than 1500 stocks actively trades in the market. On BSE, there are even around 5000 listed stocks. Generally in any type of market, every commodity, good, service etc do not get the same amount of demand and supply from buyers and sellers. Every time, this demand or supply keeps changing due to some reasons. Same happens with Shares also.
In share market, all stocks do not follow the single or same trend. At some time, few particular stocks will tend to get higher demand from investors. And at some time, some other stocks will receive higher demand as compare to others.
For Example, if the Non Banking Financial shares are in a great demand in market at a particular time, it could possible that banking shares at the same time are lacking this demand. Whereas, it is also common to see a particular stock from booming sector say IT, is rising sharply in market. But on the other hand, other stock from the same sector is under high pressure from last many months despite that the sector it belongs is on boom and its financials are also good.
So, don’t feel or assume that only your stocks are not rising when other one’s are rising. Except of few kind of shares, a good time comes for every stock which could be either in a month, Quarter, year, or few years also.
Through my Experience, what I have seen… If you are in a Bull Market and you are holding a good undervalued stock, then 90 percent possibility is that your stock/share demand in market will increase rapidly for a certain period of time within a 1 year. However, if you are in a neutral or some kind of bearish market, then it may also take couple of years to give you any great return.
Be aware from popular strategies of Operators!
There are number of investors and traders in market uses different strategies to make some profit. But one such strategy which is commonly used by many interested parties or individuals is to create position in a share of a particular company on the basis of some rumours or before any major event.
In this strategy, what happens, the willing buyers who knows the rumours firstly starts making fresh Negative/Positive positions in a particular stock depending upon the kind of rumour it is. If the rumour is positive one like some aquisition, deal news or any such positive news which is still not in the front of public, then it could be a opportunity for the interested party to create position before any reaction/action of public on shares.
Now, after the Interested party has made his desirable position and the affect of such heavy position is clearly visible in shares, the next event is the confirmation of such rumours.
If the rumours are true and and the same is announced by the Board of company, time to book profit on your positions comes in the counter. It is because the event has took place and the related information is publicly available now in market.
While such things happen, you have to avoid making any violating position which is against the trend of the share.
For Example, Suppose, ABC named company have recently conducted few meetings to acquire a controlling stake in XYZ company. ABC company has yet not announced or informed any information regarding this acquisition activity in market. But through help of someone who works in ABC company, a trading company dealing in shares has retrieved this news.
Now if the trading company would find that the affect of this news still not reflects in the share price of the ABC Company, the trading company will probably start buying its share from market until it reaches a good level or before the acquisition process gets completed and is announced publicly.
When this announcement will be made, trading company who has already bought a large chunk of shares will have option to offload the shares back in the market. After announcement, there will be much more fresh demand for the shares of company which will halp the trading company to take exit without influencing the price in a great amount.
In this course of action, if any trader who doesn’t know the truth of acquisition may sell or may also make short positions during when Trading Company was oppositely purchasing the shares. And after the announcement has been made, it could possible that the trader who had lost at lower levels because of its short position, will now make Long positions which is again against the trend! It is because Trading company or any other party who had bought at lower levels will now take a exit from share which will reduce the share price to some great extent.
However, in such activities, it could also possible that shares like ABC company wouldn’t see any fall after the announcement due to entry of new big investors in ABC shares which may even push the stock much higher.
In such cases, I recommends to use Technical Chart to find most of the breakouts in shares so that you can take your position in accordance with the fresh trend of stock.
Stocks have no limit on Fall!
In share Market, Equity Stocks with no F&O link can fall/Gain up to 20 percent in a single day. After few days, this circuit limit is reduces to 10 percent and then further to 5 percent. Means in a single day alone, equity stocks have potential to move up to 40 percent, when the circuit limit is 20 percent (20% lower circuit and 20% higher circuit).
In case of F&O, the stocks can even Gain/fall up to almost 100 percent in a single day. It means your investment value in equity shares having F&O contracts also, can even see a whole wipe out of wealth in a single day.
However, whatever the limit is there in stock, you have to remember that shares have no limit on their fall or Gain. Today, if you are investing Rs 1 Lakh in a particular share, it is possible that next week, the investment value would remain around just Rs 1,000! Due to this fact, Equity Shares are considered among the most risky investment.
In 2018 alone, there are more than 50 example of stocks which have proved that no limit exist on percentage of fall in shares. At some time, companies like Unitech, Rcom, JP Group, Videocon Industries, Essar Group etc were the leaders in their businesses which had caused their shares to be priced at higher levels. But today, see where the shares of these companies are trading. Most of them have seen fall of up to 99 percent in last 10 years.
If you think the shares of these companies fell due to their own reasons like continues fall in market share and reducing efficiency in Business operations, take a look at fresh cases! In 2018 alone, more than 10 companies which had high credibility/trustworthiness have already seen fall of upto 90 percent despite of no significant change in business efficiency. PC Jeweller, DHFL, Infibeam etc are some of the examples of this.
So, don’t think or assume that yours selected shares have no risk to fall sharply. For a equity share, it will take hardly 1-2 minutes to fall upto 20 percent!
Have any question related to this post! Feel free to ask through comment box given below.