Keep calm and follow these five principles

To be an investor, it is not mandatory to be an expert in the field.

Mar 30, 2018 07:03 IST India Infoline News Service

Most people start their trading career as speculators as opposed to thinking of themselves as investors. While trading stocks, speculators do not know what they are doing and end up gambling the money. Investors, on the other hand, determine the value of each stock before investing in it. To be an investor, it is not mandatory to be an expert in the field of stock trading. You just need to understand the stock market basics and have control over your emotions, especially greed and fear.


Choosing a broker
 
This is an obvious, but essential step for a good start. You can choose a broker based on your research and create an online trading account. However, beware of fraudulent brokerage firms. They offer attractive benefits and promises to lure customers, but are unreliable. There is no such thing as 'the best online broker' in the market and no one can make you rich overnight. Prefer brokers who provide lightning-fast trading, offers zero brokerage, and smart advisory and research facilities.
 
Money management:
 
Decide wisely on the amount of money you want to invest in the stock market. Only invest what you are willing to lose. In any case, avoid using borrowed money for trading purposes. Decide on a specific amount of money that you want to spend in a single trade, i.e., 5%- 10%, depending on your account size. Instead of investing all your money in the share market, invest a portion of it in mutual funds, the equity market, or other financial markets. This will help you to counter unexpected market behavior.
 
Learning basics
 
Create a demo trading account on your broker’s website and start trading. It will help you understand various tools and charts available on the trading platform by letting you trade virtually in live market conditions. It will assist you in making decisions about when to open and close the position. During online share trading, always use stop loss limits to minimize your losses in a single open position. Read various books and financial articles related to trading for strengthening your base.
 
Handling emotions
 
Greed and fear are the two major enemies of traders. Favorably, we should buy stocks when the price is low and sell them when the price is high. However, emotional investors end up doing exactly the opposite. They make their decisions out of greed of making more money and fear of losing it. Patience can help traders hold their positions for longer durations and prevent them from missing out on potential profits.
 
Learn to analyze
 
Traders use two types of analysis to predict market trends, namely fundamental analysis, and technical analysis. The former involves using financials to determine the future profitability of the business, whereas the latter involves using various tools such as moving averages and candlestick patterns to determine a future trend. Always base your decisions on your analysis rather than on share market tips.
 
There is nothing like an ‘ideal trader’ in the market because markets are unreliable and behave unexpectedly. For this, traders need to practice their analytical skills to predict the market better and minimize losses.

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