trading for beginners2018-03-01T11:29:40+00:00

Traders Section for Beginners

 

Topics covered

1) How to become a successful trader?

2) Why is trading not for everyone?

3) How to start share trading?

4) How to make a trading plan to get success in share market?

5) Why avoid trading blindly on tips?

6) When to avoid trading to save your capital?

 

The following pages will also provide more info on Trading

1) How to make profitable trades?

2) How to make monthly 10 percent profit?

3) Four Strategies and techniques for successful trading

4) Learn how to place stop-loss orders and limit your losses

5) How to do profitable trades on news?

6) What is the put-call ratio and what trader need to look?

 

1) How to become a successful trader?

What is trading?
The share market trading is buying and selling of shares in the share market is called as share trading.

Who is the trader?

A person doing buying and selling of shares frequently is called as a share trader.

a) Traders do buy and sell of shares without worrying about company’s performance. Traders don’t worry how the company is doing and how big or small the company is, traders just do buy and sell of shares based on the opportunity to make money. Traders are not interested to know the company’s performance or profits.

b) Trader’s are basically opportunity finder and opportunities can be in any form like good news or bad news or any government declaration or any company’s announcement. Any opportunity that makes the movement of the share price interest’s traders and accordingly they take respective trades to buy or short sell and make money.

c) Basically, successful traders gather a lot of market knowledge and experience and keep themselves updated all the time and hence the trading has considered as full-time business/job and not a part-time activity. After gaining huge experience, traders can do part time trading as well.

d) Traders do very frequent buying and selling of shares on daily basis, weekly basis and on monthly basis. Traders can be day trading and also a short-term trader.




2) Why is trading not for everyone?
Based on following four important parameters it is concluded that trading is not possible for everyone

1. Time Frame
If a person doesn’t have 6 to 7 hours to spend in markets then trading looks difficult, especially for newcomers. If you are experienced then it is possible to manage with lesser time.
Most of the people fail in trading because they want to do quick trades and make money without any knowledge and experience. So if you have such intention then it is very risky and highly possible that you may lose all your money.

2. Risk taking ability
A person should be able to take high risk in trading. Sometimes it is quite possible to lose all money. If you are looking to earn money in trading without taking a risk then trading is not recommended.

Risks Involved –

Trading involves very high risk and it can wipe out all money (capital). So it is not suitable for everyone. If you are not willing to take any kind of risk then it is strongly advised to avoid trading in any financial instrument like stocks, options, futures, commodities, currency (forex) etc.

Basically, trading is not recommended for people who are not willing to take a risk and also newcomers to share market. If you have fear or not sure whether you can do successful trading then first learn and do paper trading practice and if you are successful in paper trading then go for real trading.

Trading involves very high risk and hence provides high returns in a small span of time.

Please note – We have posted various trading strategies, methods, techniques including stock picking patterns for all types of traders on our website, so make use of them as all are free of cost.

3. Patience
This is one of the top parameters to decide the success of a trader. Patience is a very key factor in trading. Take trade after analyzing important factors and then stick to your trade rather panicking and coming out early. If you have taken the trade with all information then you have to wait till target achieved.

4. Learn and Learn
You need to spend some time before opening the market to get all information related to companies and related news. It is easier to trade on news and make a good profit.

So the conclusion is trading successfully is not possible for everyone. If a person is able to follow above 4factors then there are high chances of success.



Precaution about trading in share market

We daily receive lots of emails especially from newcomers saying they have made huge losses in trading. So we always recommend first learn and then do paper trading practice before actual starting trading with money. Also, we get emails asking for hot daily tips. Trading only based on tips is not recommended and would result in losses.

Trading requires lots of market knowledge and experience so we do not recommend trading for newcomers to share market.

3) How to start trading for beginners?

This information will help both newcomers and experienced traders to start trading in share market.

At the same time, newcomers need to learn certain market strategies and techniques so that after spending some time he or she will be able to do successful trading.

If a person spends some months in the market then it may not be necessary that he will be well acquainted with markets and share prices and will be able to do successful trading.

The below links are few related link for beginners

a) Newcomer to share market 

b) Get knowledge about basics of share market

c) What is offline and online share trading?

d) Some simple terms to understand before start trading

e) Some share market concepts to understand

e) What is Delivery based Trading or short-term trading?

f) Types of orders

g) Calculation of profit, loss, brokerage, and taxes

h) Stock selection for day trading

i) How to make profitable trades?

 

4) How to make a trading plan to get success in the share market?

Without a trading plan, it is just gamble in the share market. If you have a trading plan before market starts, then there are high chances of making the profit for that day.

Simple technique to earn profit in trading –

To make profits in day trading you should look for small profit per share and not wait for big profit per share because in day trading lots of external factors affect the market direction and the share prices so the prices can easily fluctuate to any direction at any time. Look for small profits and do multiple trades.

So if you are planning to trade and you don’t have a trading plan then you are risking your capital.

Let’s see how to prepare a successful trading plan:- Make a simple trading plan and make profits on daily basis

Include following 4 strategies in your trading plan before the start of the market:-

a) List of 4 to 6 shares to trade today – Make a list of 4 stocks and mostly include those which are in news OR include those which were highest gainers and losers on yesterday’s list. Please visit the page of stock selection for day trading

b) Profit taking strategy –If you want to make the profit then you must have the plan to take profit.

How much profit per share should be taken because if you don’t have profit booking strategy then you will end up your day with losses?

So how to book profit and when?  – Generally, most of the traders fail because they wait for big profits per share in a single trade. In day trading one should not wait for big profits per share.
For example – 
If you buy 500 shares of Bank of Baroda at Rs 170 then you should take profit of Rs 1 per share.  After deducting brokerage and taxes your net profit would be above Rs 400. Please note your brokerage rates should be very low – check low brokerage trading account

 




Important
Its very easy to take Rs 1 profit on this share but if the wait for Rs 4 to 5 per share then you would end up in losses. Because it is very rare for traders to catch Rs 5 movement but it is very much easy to catch Rs 1 movement. 
So do paper trading practice and get the profits and then start trading with real money. Likewise, take small profits and do multiple trades in a day.

How to take profit based on share price?
There is no any rule for profit taking but successful trading requires some strategy and technique. 

Below profit taking strategy ensures that traders take small profit and makes successful trades.
The following list shows how profits are taken in day trading –

So if the stock price is till Rs 100, a trader can take 0.5 paise as profit per stock.
• If the stock price is between Rs 100 to 200, trader can take profit of 0.8 paisa to Rs 1.0.
• If the stock price is between Rs 200 to 300, trader can take profit of Rs 1.0 to Rs 1.5
• If the stock price is between Rs 300 to 400, trader can take profit of Rs 1.5 to Rs 2.0
• If the stock price is between Rs 400 to 500, trader can take profit of Rs 2.0 to Rs 2.5
• If the stock price is between Rs 500 to 600, trader can take profit of Rs 2.5 to Rs 3.0
• If the stock price is between Rs 600 to 700, trader can take profit of Rs 3.0 to Rs 3.5
• If the stock price is between Rs 700 to 800, trader can take profit of Rs 3.5 to Rs 4.0
 it continues….

You have to pay brokerage and taxes
Brokerage rate are very competitive nowadays- you have to pay just Rs 20 flat per trade. Want to check then visit Demat and trading account
For more information about taxes and brokerage calculation please visit this page

c) When to exit the trade – mention stop loss as well as profit strategy.

When to exit the trade is as important as entering the trade. Exiting the trade will decide your profit and loss of the day.
As stated above if you keep your profit booking strategy at the lower side then surely you will make your day by profits but in day trading lots of external factors dominate the markets so it is quite possible that sometimes even Rs 1 profit taking may not be possible so during such times you need to book loss.

One thing you have to remember that in day trading it is not possible to take profit every day but at the end of the month your strategy should be profitable. So don’t try to trade daily if you have an opportunity then trade or else wait for next day.

So losses and profits are part of trading so need to have to accept both and limit losses and make profits more in a month.

It is also seen that if a trader makes losses then he tries to make the aggressive trade to recover losses but such strategy may not work. If you make the loss in any particular trade then wait for some time and watch market and share price movement and then decide whether to trade for that day or not. Please remember there is always a trading opportunity next day. 

Important note – Aggressive and overtrading leads to heavy losses in share market. 

d) Not to trade if market or share prices are moving in a very small range

Due to some reasons, some days markets and hence share prices move in a very small range or some days due to international events market goes into volatility mode so it becomes difficult for traders to notice share price movement and hence unable to book profits. During such days traders need not try forceful trades. The wise traders will stay away from markets during such days. If trader tries to do trading on such days then there are lots of chances for losses.

For example – Volatility days

RBI rates decision

Companies quarterly results

Any politicals news like election results

Any financial scams

Derivatives (futures and options) expiry day (last Thursday of every month)

Generally it is seen that long weekends or Global market holidays sees dull days for share market.

companies mergers, take over etc

and lot more

 

4) Why to avoid trading blindly on tips?

Did you enter into share market to trade on hot tips and expect to be successful? Then we have hundreds of examples and facts to tell you that it may not be wise decision. Maximum people fail in share market due to this plan.

You can’t blindly buy and sell the shares without having knowledge and make profits. If you want to try then try paper trading based on your tips and if your get any profits then try with small amount. Try for one full month and if you get success then you can take the decision.
It is also seen that some traders spend months in markets and getting all knowledge they try tips and sometimes this strategy also becomes successful. 

Trader should have market knowledge, study of share price movements, what type of news and which news makes how much affect on share prices, how to wait for quarterly results and trade to get best profits, when not to trade on any particular news or day so all this knowledge makes the trader more successful.

Why trader should avoid trading on borrowed money?
Been in share market for last 15 years we have seen that people think of making big money in share market in a very short time so even if they don’t have money they borrow through friends or relatives or either through banks and start trading.

Generally it is observed that borrowed money puts pressure on trader to make profits and to return the money with interest rates so such situation makes trader to do unwanted and forceful trades and ends up into losses.

If you have Rs 1000 then do paper trading practice and if you get success then use Rs 1000 and start trading but avoid trading on borrowed money.

 

Why new traders should avoid using margin amount?
Margin amount is extra amount provided by broker to everyone for a day trading. Generally it is 4 to 6 times based on share category. Nowadays, some brokers provide very high margin amount. If the share is part of index like Nifty or Sensex then broker provides even higher margin for day trading.

But the condition is if you use the margin amount then broker wants that money before market closes at 3:30 PM means you have to square off your trades before market closes or else some brokers close the trades automatically and some brokers charge penalty charges if you hold the trade for next day.

Whether your trade is making losses or profits you have to square off your trades before market closes that is before 3:30 PM.

So the conclusion is if you have Rs 1000 then trade only with your money. So if you buy shares of Rs 1000 and for some reasons if the share price did not move up then you can take delivery of these shares and sell tomorrow with profits instead of selling into losses on the same day but you can’t hold your trade if you use margin amount.

But once you become experienced and start getting consistent profit then slowly you can start using margin amount. Some experienced and knowledgeable traders use margin amount for trading.

We hope you would have understood why not to use margin amount if you are beginner to trading. If you have any questions then please write to us

 

5) When to avoid trading to save your capital?

Successful trader knows when to avoid trading. Avoiding trading at improper times is as good as making profit.

Following are few factors during which trading may not provide returns but in fact may lead to losses.

a) If you are impatient.

b) If you have no time and want to do fast trading. Successful trading and to make profit requires time and patience.

c) If you are not getting any shares for trading. Sometimes it happens that most of the shares trade lackluster and traders get confused and unable to pick any shares for trading.

d) Avoid overtrading – Overtrading means, trading with all the money you have and also utilize margin amount. So this type of buying and selling shares in huge quantity may lead to fear and this fear most of the times leads to losses.

e) Don’t do emotion based trading. – Don’t do multiple trades if you encounter losses for one trade. Sometimes if traders books losses then he does multiple trades to recover that losses and mostly these trades happens based on emotions and mostly such trades leads to losses.