STOCK MARKET BASICS

Hey, can you teach me how to trade?

Let’s be honest, we all at some point have asked this question to our colleague or friend who is already invested in the markets and we are yet to wrap our heads around the fact that a friend of our is making profit that amount to our monthly salary in a day. Ah yes, ofcourse, the movies like ‘The Big Short’, ‘The wolf of the wall street’ and ‘Scam 1992’ have risen our interest in trading and has let us with this hunger to create wealth.

What is meant by Trading?

Trading essentially is the transfer of goods from one person to another or the transfer of goods from one entity to another. The place where we can trade stocks for money is called the Stock trading. Trading is not just limited to the Stock Market, trading exists in all walks of life and is an aspect of our everyday lives.

For example, we trade our money in exchange for vegetable from the vendor in the vegetable market and flower from the flower market. Even online shopping is also a Trading right?

Knowingly or unknowingly each of us exchanges our money or resources for goods or services thus constituting a trade every single day.

Trading has existed since the dawn of Humanity and the oldest trade dates back to 6000 BC by the Mesopotamian tribes where they bartered grains, textiles etc., was a Trading.

We all have learnt these things in school. The inefficiencies involved in the barter system paved the way for modern financial instruments to foster economic developments. Well, I hope that gave you brief idea as to what trading is and how we all at some point have been involved in the process of trading.

TRADING IN STOCK MARKET

Trading usually happens between two traders who have opposite views of a particular stock.
Depending on how long a trader hold’s the stock, the trade can be classified as a short term and long term trade.

HOW TO START TRADING?

Before you jump to make a trade, it is important to understand the different styles of Trading and pick one that suits your personality.
Trading due to the time and energy you may have to devote for the same.

4 KEY STYLES OF CLASSIFICATION IN TRADING

1. SCALPING:

This is by far the shortest form of Trading and requires high levels of precision and practice to master it. An average trade can last anywhere from a few seconds to couple of minutes at the max.

2.DAY TRADING:

This involves buying and selling stocks on the same day. Trade could last anywhere between a few minutes to a couple of hours.

3. SWING TRADING:

This is a style of Trading where a person holds the stock for one or more days to a couple of weeks at the maximum in the hope to profit from price changes or swings.

4. POSITIONAL TRADING:

Positional Trading involves carrying positions for a few weeks to several months focusing on long-term price movements.

 

WHAT IS TECHNICAL ANALYSIS?

Technical analysis is kind of analysis that predicts the price based on historical price movements. Traders chose to trade their aforementioned style by two main approaches:

 

PRICE ACTION

Price action is simply the movement of stock price plotted overtime with a special kind of chart called the candlestick chart. Traders use these chart to spot breakouts and trends and position themselves accordingly.

The one disadvantage of Price Action is that it is that it is very subjective. It is not uncommon for two traders to intercept the market in different ways and come to opposite conclusions.

 

INDICATORS

As lines on the chart which aid in the decision-making of a trader. There are a variety of Indicators in the Trading . LEADING INDICATORS & LAGGING INDICATORS.

THINGS TO KEEP IN MIND BEFORE YOU START TRADING

I think I got a fair sense of direction as to how to proceed with Trading. PLEASE WAIT, there are few important points.

Trading unlike investing requires us to do a lot of buying and selling of securities on a frequent basis which will put a dent in your Trading account if you are not careful. So it is very essential to choose the right broker in the market. Also, it is no secretthat less than 5% of Traders make money while the remaining 95% of the people lose money. Hence it is very essential to have the rightmindset and expectations before you get started.

One should have realistic targets in Trading and should be consistent before scaling up. Failing to have a clear objective is a sure shot way to blow up your Trading Account. Hence keep following things in mind

CHOOSE A RELIABLE & REBUST BROKER

START SMALL AND TRY TO BE CONSISTENT

DO NOT DEPEND ON TRADING PROFITS FOR YOUR LIVELIHOOD

NEVER TRADE WITH BORROWED MONEY

Lastly one should realize that Trading is a skill and like any other skill, it requires its own time and efforts. So do not lose hope and stay focused on improving your skills and see how Trading will eventually pay off.