In our times when instant gratification has become a driving force behind every investment, how can stock markets be an untouched or unexplored territory? This is very well documented in the fact that there is an increasing participation of retail investors in markets in recent years. Investing in stock market for some quick money is an obvious choice for many. Very few think of creating wealth in the long period of time when they look at stock market. However, the essence of the stock market lies in the latter and not in the former. Here are some tips for the beginners in the stocks market.
Know the markets
The financial markets are an ever-evolving industry. Hence, it is important that one knows the basics of stock market. It is a must. Things such as understanding data points and their implications are key elements which come in handy in making sound decisions. Make yourself familiar with the operational aspects of the stock market. This could be: various types of orders your broker offers, margin system, payouts, applying for Initial Public Offerings (IPOs). These things will make the journey comfortable for you and provide you confidence to invest.
Avoid leverage
In the initial days it makes sense to start with a small sum. Even if you go wrong, it should not wipe you out. Do not invest or trade with money that you need in the short-term. Avoid dabbling in derivatives as it is a form of leverage which brings in large profits as well as large losses. Even if your broker is offering some margin facility or funds to invest in stocks or IPOs, do not go for it. Do not take loans to invest money in stock markets. Investing or trading with your money makes you comfortable with the environment. If you want to trade big or have multiple trade ideas which cannot be supported with your capital, then you can use simulators or virtual trading platforms to carry out paper trades.
Record your trades
Many times in the initial period, there is the beginner’s luck which does not last long. If you are winning big in the early trades, then it should not be construed as a skill. Learn to distinguish between skill and luck. The best way to do that is to keep a record of your trades. You should ideally write down why a particular trade was taken and other details such as price and volumes. A careful analysis of the past trades can help investors and traders in making well-analysed decisions.
Stop loss is the king
If you decide to be a trader, then do not forget the stop loss. It has to be keyed into the system after you have initiated a trade. Stop loss protects you if the trade goes against you. Earlier you take the loss, better it is. All big losses are small losses at some point of time. Those who deny taking small losses tend to see larger losses.
If you are investing in stocks, then you should review your position if your investment premise is seen changing. Change your view if the facts changes. This is a difficult act, but as your spend more time in the market you gradually get hold of it.
Discipline and learnings
You may choose to be a trader or investor, but you cannot ignore discipline. If you have an investment or trading plan, then stick to it. Do not try to catch each trend. Sticking to your plan helps you remain on track to your goals.
Investing and trading is more about mental abilities than financial muscle or access to information. More you train yourself, higher is the chance you succeed in the game of investments.