Friday, 19 November 2010

How to make money in Stock markets...

Before we start assuming, let me make it clear that I have not made alot of money from the stock market, at least not as much as I would have liked. Fortunately ( just being modest ) I have not even lost money. However I have considered myself a player of the market from last 5 years and I have seen the entire sine wave of the market. As in I have seen the market rise from 15k to 21 k , then falling to 8k and then rising back to 21k. This exposure gives me enough knowledge to write on the matter. Here I share some common tips and trick to make money in stock markets. However please note that this tips are for Retail investors who have a proper salaried job and not for people who make a living out of stock markets.
  • The best thing ever told to you guys would be to invest in Mutual Funds. This allows professionals to take care of your money. However you are not directly involved which means less fun, less risk , less gains and less losses.It is good for people who just want to invest and not care about stock markets
  • One of the best tip is given by the man who made millions with stock markets, Warren Buffet. He says ' Be greedy when others are scared to buy and be scared when others are greedy'. Though it looks simple its the most difficult thing to follow. I can say that with personal experience.
  • Another golden rule says ' Buy on rumours and sell on news'. This rule can be called as a corollory and above rule as a theorem. Again a simple rule but difficult to follow.
  • One of the most important thing to remember when you trade in shares is that never do it on credit. In stock market terms, it is also called margin. Always buy shares with cash so that you can hold them as long as you want. Buying on margin increases your exposure to losses.
  • When you buy and sell shares for short term, technical analysis is more important than fundamental analysis. Most of the analyst coming on TV shows and recommending buy or sell of shares are technical analysts.
  • Before you start following tips for buy/sell from any technical analyst, make a thorough research on the person's calls. For at least 3 months, note down the person's recommendations and targets and find out how many times is he right. Some sites like rediff portfolios or moneycontrol can help you in this process. I, myself, go through this process and after a year of research, I follow a particular analyst blindly now. He is 80% times right.
  • Remember to respect the Stop Loss phenomenon. The analyst would always say to buy a particular share but to keep a stop loss on it. For example, he may say buy 'A' for 100 Rs with target of 110 and Stop Loss of 95. This means his call is valid for buy only till the share reaches 95 rs, Below that it is recommended to sell even if we are in a loss.
  • Averaging is a good scheme but is not always right. To keep buying more shares of a particular scrip (company) when it is going down will not always work. That money could have been used to buy shares going up and make money.
  • Always be ready for the fact that not all days are going to be profit days. Be ready for the loss days.
  • Never consider stock market as a fast and easy money making money phenomenon. It is a very analytical gambling. Set your expectations right.
  • Remember the real money is made by big players. We as retail small time investors are people who eat the left-overs. Accept this fact. Though the left overs are a considerable amount, it still will never be as big as what the major players earn.
These were a few thoughts I felt like sharing with you guys. Please do inform if you found these useful. Also feel free to ask questions on the topic if you have any or if there is any other area within the topic that you want me to write about.

Planning to write a few points on Tax saving/planning near the December-January period.



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