A beginner always starts with a dream to bag big profits from the stock market in a shorter period because they might have read many success stories about the stock market but not the flipside.
It is a human tendency to share only the success stories to the world and bury the failures inside him the same happens with the stock market.
Traders or brokers share you only the success stories they never tell you their huge loss. I am not threatening but cautioning.
By writing this post you need not assume I am a stalwart in trading and a multi-bagger. Even I am a novice but before investing in the stock market I learned few things which I feel all the beginners to do to protect their investment in the market.
These five tips will help you to be vigilant about your investments before you start trading.
If you are already into trading, no problem you can read and comment down your views.
1.Gain knowledge before you gain money
Here reading is not going through two or three web pages and starting a DEMAT account but reading books written by successful investors.
We are investing 2+12+4 years in formal education to start earning but when it comes to trading we are starting as a mediocre.
If your intention is to protect your capital and make a profit you should definitely prepare yourself.
Few Indian author books like How to Avoid loss and Earn consistently in the stock market, Stocks to Riches and Value Investing will teach you the Indian stock market scenarios clearly and deeply.
Read and understand the underlying concepts how these people are making business and why many people are making losses.
Once you understood the basics of trading your knowledge will never make you fail.
2.Find the right platform
Demat account is mandatory for investors to trade in stock market.
There are many online stock brokers through which you can easily open the demand account in a week. While choosing the platform don’t be fooled by the term “zero accounts opening charge” look deep into other charges and reviews.
For each transaction (sell and buy) you have to pay brokerage and tax whether you lose or earn it doesn’t matter to them you have to pay and their profit-making model.
The brokers who provide free account always charge higher transaction fee you can check it on their website before signing up.
Don’t be carried away by the brokers suggested by bloggers. Bloggers always brag the brand which pays them high affiliate commission.
Take a list of account brokers and go through their commission rates and their credibility then you decide on your own.
3.Don't do Intraday trading
Being a beginner to practice trading we can pool little money to do intraday trading but don’t make it as a lifelong practice.
Brokers may encourage you to do intraday trading because their earning depends on the number of transactions either sell or buy. You must pay brokerage.
In intraday trading, you cannot earn big and sometimes you will be deceived by the upward movement. Without calculating tax and brokerage we sell the stock and end up in a loss.
If you really want to make a profit you must hold the equity for a long time provided the current share price is above the purchase price.
Warrant Buffet built his empire through long-term investing not through intraday or short term and you cannot find any intraday millionaire stories.
In 2014 MRF share price was selling at 28,000 now it is 71,000/- in three years it brings 250%+ returns. You need to give some time for your money to grow.
4.Trade on your own
Don’t bring brokers into your business.
The one common thing I read in many books is “If the brokers are really smart they should make money by trading not by selling their advice” and mostly they trap you into trouble.
When you trade on your own you can learn many things right from profit-making models, market conditions, decision-making skills and many overall it grooms you.
Even if you lose your money you get some knowledge as a return. But with brokers, they simply guide to buy or sell. Which will keep you completely dependent on your broker lifelong?
5.Don’t pool all your money
It is mostly salaried professionals who are more interested in putting their money in trading to earn some additional income.
But here we must be very careful don’t pool all your savings if you make a profit then it is fine but on the other side if you lose then everything will be gone.
Your broker will provoke you by sharing success stories but don’t carry away by them.
Based on your monthly expenses allocate some percentage for trading every month and don’t take the money outside the cycle buy, sell and reinvest.
This is what Warren Buffet did, Buffet always reinvested into the business and kept the flow undisturbed.
Trading is not the quick money-making program, you cannot become a millionaire in a month but you can in a long run by having little money, good knowledge, and huge patience.
Rather than depositing your money in a savings account and waiting for the interest you can invest in share market and build your portfolio.Shares are like assets you can pledge it in future to get education loans or can sell completely at any time.
These are the five things I would like to share with the beginners like me. If you find this interesting please share this post with your friends.
To better this post you can comment down your suggestions or contradictions below.
June 19, 2017
June 19, 2017
Stories by Nizam