How to start share trading with minimal risks?

Share market is a place which has shows frequent up and downs moments in its working. And this provides a good amount of opportunities. Supply and demand situation of shares changes within a very short span of time.

trading with minimal risks

It gives an edge if you are alert in the market. And at the same time, it does not give an edge over other opportunities in the market if you are not alert.

Few shares may be having run on one day and maybe on some other day, you will not see any movement in those same very stocks.

Must Read: How to become a Successful Stock Trader?

One can easily get a huge amount of data, of any company, industry or sectors. There are also software tools which analyze the data for required parameters that you might be seeking. Say, 52 weeks high and low for a particular company. Share price position starting from present instant to five days to six months to a year.

Share prices are influenced by local factors, national factors and fluctuations in the world markets. They can increase or decrease depending on their supply/demand position. But there are few ways by which we can minimize our risk and also safeguard our invested amount while share trading.

At marketplace we can gather sufficient information, present trends, so as to rough prediction the future trends. And make gains from it.

Must Read: Top Ten steps you need to know to become a day trader

How should one start trading with minimal risk? What should be your approach?
  1. Getting advice from experts

As in every field, there are experts in the stock market field. People having years of experience behind them. Taking advice from them increase our knowledge of the market. They guide us with their expertise and advice. They can show us better and suitable ideas, as of how to gain from the market. But experts also fail sometimes. Their failure rate may be too low as compared to a new entrant.

When a new person enters a market, he has very less know-how of the market functions. He may be at loss of ideas. At this point and experienced person can provide the insight of how the market actually works. What things are there those trigger the markets for better or for worse?

This advice will help new entrant to develop their ideas, to get profitable returns from their investments. If new entrant does not profit in short run, at least the advice will help him in some way or the other. Being experienced, they have a fair idea, which sector or industry will be on the rise in future.

Must Read: Top ten day trading secrets for beginners

People are always on the outlook to on strategies which give them maximum benefit. If online trading gives them better and easy opportunity, they will go for it. A stock market is a place where investors are attracted like a magnet because of the higher returns it gives compared to bank FD or other financial instruments.

  1. Maximizing returns with minimum risk

It is the common tendency of people to earn maximum benefit from a minimum of investment. For this, they have to get an edge over others in the same field. People are always on the outlook for such an investments option such that they earn can earn maximum returns in the least possible time.

In the stock market, one can have the best of both worlds. That is maximizing returns on their investments in the shortest duration of time, as compared to other investment avenues. Once their teething troubles are over they can develop a better understanding of the market-place.

Must Read: How to start investing for a useful purpose?

They understand in a better way how to read charts. Their analysis of the market matures with the time. They learn how to manage money in a more efficient and effective way. Improve their chances of getting better returns on their investments. Decrease or contain their risk to the minimum.

Must Read : Top 4 Myths And Facts About Indian Stock Market Exposed

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How to become a Successful Stock Trader?

A trader takes a short-term view of the market. He is a market participant. He trades for a day to few days. They are more interested in volatility and take advantage of volatility in the market. They are neither value investors nor growth investors.

Successful Stock Trader

A good trader knows the importance of discipline, patience, and persistence. It is not only about taking a risk and moving suddenly from one trade to another.

Here are some habits that successful traders should possess
  1.  Managing risk optimally

Each trader has a limited capital to trade with. Within that capital, he has to buy, sell, hold and earn the profit. He has to rotate his capital in such a way that he should not miss any opportunity which it comes for purchase, and at the same time, some of his capital is stuck up in the shares that he is holding. He should know, how much from his capital, he can afford to lose in the worst case scenario.

Must Read: Top Ten steps you need to know to become a day trader

  1. Be confident and practical

The trader should be confident and optimistic about his trade. Though not overconfident, of course, realistic and reasonable. He should believe in the dictum “There is always the other day to trade profitably”.  Successful traders do not attach emotions to any stock. They always go for logic and calculations. They have a strategy for all their trades. They know how many maximum returns they will get in each trade. They have realistic targets.

  1. Cost matter a lot when you are a trader

Traders should have cost consciousness. That is while trading they should count each any every cost that they incur at each and every step.  Like brokerage charges, holding charges, demat account charges, margin (loan) money interest charge etc. A trader ruffles (put into use) his money as often as possible in search of opportunities. Since trading is a continuous process even little increase in cost adds up quite a bit in long run. And after taking all the trouble and tension, if he is not able to generate income more than the bank FD, then there is no use trading.

Must Read: Top ten day trading secrets for beginners

  1. Steadfast and resolute should be your pillars

Great traders are steadfast and resolute to a high degree of their trade. They have to train his mind towards attaining one’s goal. One cannot gain from all trades and conversely one cannot lose in all trades. Winning some and losing some. And this should not shake up the trader. Once the trader has created a plan,  he should have due diligence to stand by it.

  1. Learn from market trends

Everyday market offers new and new things. Hence a trader should be a constant learner. He has to tweak his strategy according to market needs. They try to be in sync with the market trends as far as possible. Though there are traders who take high risk. But they are few in number. It is better to learn from the market instead of blindly doing guesswork.

  1. Read, learn and research

The successful stock trader use their maximum time for reading and analysis. Reading annual reports of the company, business newspaper, change in government policies, new schemes launched by the government, world news, etc. Learning from past experience, noting down success and failures. Doing their own research and analysis of trends, the effect of news on prevailing market condition.

Must Read: How to pick a good stock for intraday trading?

  1. Executing trading plan

A trader focuses closely on how he executes his trades. Because a lot of things are involved like using candlestick chart effectively to identify entry and exit points. Purchasing shares in bulk, at one go or purchasing in small amount of pieces at a time. Is the trader over selling/buying because of the direction of the market.

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What is a stop loss order in share trading?

There are many things a trader or investors look before buying or selling the shares.  Like current market price, return on investment the share can give, does fundamental and technical analysis. But many times it so happens that he forgets about a small little thing as stop loss order. This can make a huge difference in containing losses.

stop loss order

Stop loss order is an advance order, given to the broker/agent from trader/investor to sell the shares when it reaches a particular price. Usually, it is designed to limit loss on his position.

Must Read: Top Ten steps you need to know to become a day trader

If one sets the stop order loss at say 10 percent, it means, when the share price reach is 10 percent below the purchase price it automatically triggers sell order.

Suppose share of XYZ Ltd. is purchased at Rs. 20 per share. And 10 percent stop loss order is placed. No sooner the share price reaches Rs. 18 the sell order will be triggered. And the share will be sold at the prevailing market price.

As far as share trading is concerned, stop loss has both advantage and disadvantage. The advantage is that once stop loss order is placed you do not have to monitor the share price on a regular basis. In this situation, you will not have to keep a constant watch on the market for a long period of time.

Must Read: Top ten day trading secrets for beginners

The disadvantage is that if the share price touches your stop loss order for only a moment, your sell order will be triggered. No matter even if it is for a brief period.

Stop loss order percentage should be placed taking into account range of day to day fluctuation of the share. Since some shares show high/low volatility on daily basis. It can be 5 or 10 or even 15 percent. Depending upon, as the case may be.

Most people think that stop-loss order is just a tool only for preventing losses. It can also help to lock in your profits, sometimes called trailing stop. In this, stop order loss is set just below the current market prices. As the prices increases so does your stop loss gets adjusted to now 10 percent below new market prices. Using trailing stop, allows you to let your make profits while at the same time assuring some realized capital gain.

Must Read: How to take first step to make money in share market?

Taking the above example of XYZ Ltd., stop loss was 10 percent at current price that is Rs 18. Now suppose share price rose to Rs. 30. Your trailing stop loss order will be locked to Rs. 27 per share. Calculation – Rs. 30 minus 10 percent of Rs.30 that is Rs.27. In case of any downfall now, in the worst case, you will get Rs. 27 which is far above Rs. 18 that you might have received earlier.

You may be a value investor (seeking shares believing it to be undervalued) or growth investor (seeking shares for potential capital gains) or active trader (seeking shares to exploit profitable condition). Only one strategy works. And one must stick to it.

Must Read: How to pick a good stock for intraday trading?

 

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Top Ten steps you need to know to become a day trader

One can access the internet through desktop, laptop or mobile. Digital revolution has flooded the market with many opportunities online. Out of these, one such is online trading in stock market.

steps to become a day trader

People can make money online by day trading from the comfort of their home or office. Online trading is gaining popularity on this front in present time.

Must Read: Top ten day trading secrets for beginners

As with any other businesses, not everyone achieves success in day trading. Only those who work hard, gain knowledge, analyze and have the burning passion to achieve it are successful. They are the people who stand out from the herd.

Day trader buys and sells securities (bonds, shares, MF, etc) mostly on the same day. Mostly dealing with shares/stocks. He squares his accounts at the end of the day. Rarely does he keep his position open for the next day. In other words, day trader completes his transaction of buying and selling mostly on the same day.

Top ten steps you need to know to become a day trader
  1. You should have a clear mindset regarding how much time you are willing to spend for day trading. You should be also clear how much amount you are willing to put in. Once you have decided on the above you can proceed further.

Must Read: How to start investing for a useful purpose?

  1. Next is arranging for funds that you wish to put in. Usually called seed capital or the base capital. It should be sufficient enough to get good returns for the time and energy you put in.
  2. Next is gaining knowledge of the present market. You should be able to read charts, do some mathematical calculations and apply your logic. Observing how the market works. How it reacts to the news when the government makes some changes in its policies or introduces some schemes. You should know about the margin money (loan offered by brokers) requirements.
  3. The day trader should have at least working knowledge of how other securities like bonds, mutual funds, forex, futures, and options work.

Must Read: How to take first step to make money in share market?

  1. A successful day trader has a strategy prepared in advance on which he works. As time goes by, he fine tunes these strategies, with every profitable or loss trades.
  2. Once the strategies are in place. They are tried and tested with each passing trade. You will have to finalize your day trading plan. You will have to ask few questions to yourself. How much money will you invest in trading? How frequently will you trade? Which sectors or industries you will trade in?
  3. Money management is one of the most important factors you should work on. That is allocating a certain fixed amount of money for each trade. You may be having few trades in a day. Maybe, two or three trades a day in the beginning. This number can be increased in future. You will have to fix your risk-reward ratio. In beginning it can be 3:1 and later on it can be changed to 5:1.
  4. Day trading is done through brokers. Brokers are broadly of two classes. Full-service broker and discount brokers. They charge their fees according to the trade. Day traders prefer discount brokers. Some discount brokers charge a flat fee and some other charge on monthly basis.

Must Read: How are full service brokers and discount brokers different?

  1. Note down in detail each and every transaction that you enter. This way you will be able to collect information on your trades. This information should be analyzed for making and fine-tuning your future strategies. Historical data so gathered, will help you in knowing your weak and strong points. This will help you while formulating your strategy.
  2. Always use stop-loss while trading for each and every trade. It will contain your losses. In beginning, when capital and experience is limited, stop loss plays a vital part in your day trading. Better start with small amounts to test water. Once you are confident of picking up good trade then gradually you can increase the amount.

Must Read: How to pick a good stock for intraday trading?

These above ten points will safeguard you in your day trading endeavors. Though the process is a bit time consuming and needs extra efforts from your side. But it is worth it to be a better day trader.

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Why and how volume is important in share trading?

The volume of trade is a measure of securities (shares, bonds, options, futures and/or commodities) traded during a day. In other words total number of buyers and sellers exchanging securities over a period of time, which is usually a day.

importance of volume

In other words, it means the total number of shares that changed hands between the buyer and seller. Their volume is high if shares are more actively traded. Conversely, their volume is low if shares are not much traded or not traded at all.

Must Read: Top ten-day trading secrets for beginners

Say for example if share volume of the day for a particular company was 1,00,000. It meant that there were 1,00,000 sold by someone and bought by someone on that day. Combining all the listed companies whose share had been traded is called volume of the exchange.

The volume gives only the information of market activity and liquidity. A higher trade volume for a specific company means higher liquidity, and the share is active. For example, usually, blue chip companies have high trade volume and penny stocks have low trade volumes. You can also get the list of high trade volume companies from any stock advisory company.

Though volume alone does not provide any important information as such, when volume data is read in conjunction with support and resistance levels, plays an important part.

Must Read: All time stock trading techniques that you should follow

Data regarding volume trades of a share is available on the exchange website. Along with its present price. It is for a day, 5 days, 1 month, 3 months, 6 months and 1year are available, of all listed company at the exchange. Or else you can get from firms providing nifty future tips.

Example – Let us take a scenario that company breaks a ‘resistance level’ and moving up further. And since it has broken through the critical level, prices are expected to go up more in the future.

Volume traded on the day is suppose 3.5 lacs were exchanged. Assuming, the company under consideration on a normal day trades 10 lacs shares. Now traded volume, which is 3.5 lacs is way below average. That means big traders are not trading. Next, say if traders decide that they are bearish on the share. They sell their lot and cause panic. You can get volume list from firms providing nifty option tips. And share prices go down the next day. Vice versa is also true. This is the importance of volume.

Volume is one of the important factors for technical analysis. They work both for resistance and support levels. Generally speaking if the price is showing an upward trend, volume should also rise, and vice versa.

Must Read: How to take first step to make money in share market?

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