Following are a few tips which would be quite helpful in making money in the stock market:
Be a fundamental investor instead of a speculator: A fundamental investor is the one who invests by giving more importance to the fundamental strength of the company instead of the stock price. A fundamental investor shifts his focus to ‘valuation’ only upon being completely satisfied by the fundamental strength of the company. While a speculator gives utmost importance to the stock price, it is much riskier in practice. A common man must avoid speculation and stick to the practice of fundamental investment in order to earn and avoid loss.
Avoid herd mentality: The decision to buy and sell stocks should not be dependent on acquaintances. Do not tend to invest in stock because people around are also investing in it. Avoid such practices as they do not yield well in long term and often end up with heavy loss.
Take research based decisions: Always make sure you research thoroughly before investing in the stock. Since the research gives vital information about market trend. It is not always necessary to go by the company name instead try to look for the performance trend so as to earn better.
Invest in a business: Always invest in a business than a stock. This means thoroughly understand the business of the company instead of just looking at the stock value, for better returns. Understanding of company’s business will help you to make better decisions.
Never time the market: It is always advised by the experts to never time the market. No one ever had been successful in it and you might end up with heavy loss. It is not really possible to catch the top and the bottom prices accurately for any stock because it is always relative.
Invest with a disciplined approach: The volatility in the market has often lead to loss even in a bullish trend. Therefore, it is always advised to invest systematically, in the right shares with patience for good returns. Having patience and a disciplined approach always helps in taking the right decisions besides keeping a bigger long term picture.
Never let emotions overshadow judgment: The inability to control emotions especially fear and greed has always caused huge loss to the investors. Greed and fear often lead to wrong decisions like creating heavy positions in futures, investing largely in unknown companies. Therefore, it always advised to not let the emotions overshadow the judgment while taking any investment related decisions.
Have a broad portfolio: The diversification of portfolio across assets helps in earning optimum returns with minimum risk. The kind and level of diversification depend on the investor.
Expect Realistically: Have realistic assumptions. Never expect the stock market to return in the same manner. Unrealistic expectations always lead to wrong decisions and major loss.
Invest only surplus funds: An investor should only invest the surplus funds. Since it is a volatile market and always have a risk of loss. Later he can use his gains from the market for further investments.
Rigorous monitoring is required: Rigorously monitor to get updated on trends. Even a small event can have a large impact on the stock market. This makes it riskier than other modes and requires more alertness. Thereby demanding rigorous monitoring on events and market.
It is always good to increase the scope of income and stock market appears as an option. But with its merit of extra income, there is definitely risk involved. So, one has to be very careful while making investments. Above tips could be very helpful in taking right decisions and earning money in the stock market.