Calculating the returns on a stock
If a stock appreciates from Rs100 to Rs145 in 3 years that is 45% returns over 3 years or 15% per year, right? No, that is absolutely wrong. The actual annual return will be 13.2%, because we need to factor the impact of compounding. The message is that if you want to trade online, get familiar with Excel Spreadsheets. From basic calculations to formulas, it is largely menu driven. Once you learn to use basic formulas to calculate future value, present value and IRR, you will find online trading lot more fun and you are independent.
Using screeners to shortlist stocks
You can use the basic screeners available on Moneycontrol or go for advanced screeners which are normally offered by brokers. These screeners will help you shortlist stocks. For example, if you want to only invest in stocks with ROE more than 15% and P/E less than 15X, just set that condition in the screener. It gives your stock selection better focus.
How can you not know basics of charting?
The purpose is not to become an expert in technicals. Once you have identified a good stock, check the charts for buy / sell signals. If a stock is quoting at Rs150, the support is at Rs125 and the stock is looking weak in the short term, technical charts are asking you to wait and buy closer to the support level. Most brokers offer technical charts for supports resistances, momentum and break outs. That is good enough to start!
Learn to toggle with minimum clicks
That is called a user interface or UI. Most online trading websites are designed to take you from one point to another in 2-3 clicks. Find out how that works on your trading screen and use that. It is not only economical but also enables to get your orders executed faster and makes your browsing experience more meaningful and delightful.
Order book, trade book, order types
If you are an online trader using internet or app, you cannot afford to be unaware about the nuances of orders. You normally place market orders in trending markets and limit orders in volatile markets. There is a certain trade flow in your trading account where the trade first goes into the order book and then into the trade book once it is executed. This flow is at the core of your trade execution.
Anti Virus and anti malware savvy
Don’t leave these things to your hardware person. You can buy or renew an anti-virus or anti-malware online, download and execute with a click. It is fully menu-driven so you don’t need hardware guidance. Just understand how the process of downloading software and updating them works. Secondly, keep your computer healthy and your trading account safe by going through the menu driven installation process.
Setting complex passwords
Your internet access password has to be a good trade-off. It must be complex so that your trading account cannot be easily hacked. However, it cannot be so complex that you need to write it down to remember the password. You must never write down your password anywhere. Since you live in a world of passwords, create your own algorithm. For example, January can be based on your birth date, February on your spouse’s birth date and March based on your anniversary. These passwords must be changed regularly to keep your account safe, so your internalised algorithm to set passwords is mandatory.
Understand your internet connection
This sounds simple but can actually be tricky. Firstly, when you connect to the net and open the trading site, ensure that the address bar starts with HTTPS:// and not HTTP://. That indicates the site is secured. Secondly, avoid accessing the trading account over unsecured internet connections like cyber café, mall wi-fi, airport wi-fi etc. These are unsecured internet connections. It has to be your own dedicated connection and not a shared one. Thirdly, if you are on a wi-fi don’t let too many family members use the connection simultaneously as it hampers your access speed.
As the world moves towards online trading and app-based trading, it is time to get more technology savvy. It is simple, convenient and above all, you will enjoy it!