Is there a winning approach to trading in the stock market? Many traders lose lots of money out of ignorance. They base their trades on quick hunches, rumours, tricks, newsletters, news, or tips from friends or small fry share broker, and do not define specific methods and rules to arrest risk and absorb profit before placing trades.
Others have the advantage of educating themselves but fall in the trap of their stressful emotions. They prolong losing positions in a blind greed that they will turn into winners and in anxiety sell winners by fear of losing a small gain. They overthink to fulfil a short-term need for action or by fear of missing out the market sentiments.
So how to invest in share market that makes you a long term trader?
The smart trader of Indian stock market follows a methodical approach to make profits in share market:
- They have a defined strategy to enter and exit stocks
- They use spare money management
- They observe then take consistent actions, they follow a pre-defined trading plan, do not drastically change it on sudden market reaction.
- They keep go-to documentation ready so they can review their actions
- They avoid overthinking and overtrading
- They develop positive and winning attitude
Buy and Sell Stocks
You need to a plan to put the odds in your favour for each stock you invest with.
Your planned strategy should be as flexible as possible to also include the following pointers:
- Stock Entry: It is important to understand the conditions required before you can enter a trade. It includes SWOT analysis, technical analysis, market research, product reach, weather analysis, political interjection, management and fundamental analysis.
- Absorbing initial stop loss: A pre-defined price at which you will sell the stock if it does not achieve your set margin. Especially for positions that do not go in your favour. The risk is minimised and it is derived as the difference between the entry price and the initial stop.
- Closing at initial price objective: A pre-defined price at which you will take some or all profits even if the trade shows very high profits or mid-term profit.
- Stock trading management: These are set of rules and methods that you define based on your actions when a trade is opened. It may include trailing stops, closing position, etc.
Without strategy no one can make profit in stock market. For every action you take, the reason should be based on the pre-defined investment strategy prepared by you.
Smartly managing money in Indian stocks
The core objective of managing money in stocks is to ensure losses are minimal to sustain in the share market. Your money management rules should include the following:
- Maximum money at risk for each stock. Keep spare money for future investments.
- Maximum money at risk for all your opened stocks.
- Maximum daily and weekly investment lost before you stop trading – avoid trying to make money from losing stocks if the fundamentals of the company are not strong. No point in waiting to cut losses, you may end up losing all money.
- Maximum monthly amount credited or debited from the account.
During your learning phase in share trading, make small and mock investments. Survival is the key for stock trading beginners. Here, you can download online trading app.