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How to trade in stock market and make money?
For the newcomers to the stock market trading, the most question they asked is that how to trade in stock market. I think the first step is getting to know the common forms of stock market trading.
The most common form of stock market
There are so many ways in which you can do stock market trading. The most common forms are trading in equity segment, margin trading and derivative trading. Understanding the advantage and disadvantage of each type of trading is necessary. Which type is your right way at the stock market depends on your fund and your objective of investment.
Equity Segment
This is the most common form of trading stocks. In equity segment you buy the stocks of the companies through your broker. Once the request fro buying the stocks is settled and payment is made the stocks are deposited to the DP account of the investor. Then stocks can be hold or subsequently sold by the investor. The advantage of the equity trading is that there is no time frame for selling the stocks or closing the deal. You can always hold the stocks till you want and then sell it when you think is the right time. But the brokerage charge for equity segment is greater than the derivative segment or margin trading.
Margin Trading
In margin trading that is also commonly known as day trading you have to close the deal by the stipulated time that is generally within the very day of the trading. The biggest advantage of margin trading is that you need not invest the full value of the stocks that you trade in. Though the amount for buying the stocks is determined on the volatility of the stocks, in most cases you need to invest or have 5% to 10% of the total value of the stocks. So while doing margin trading you can hold more stocks with the fund than you could have otherwise bought them at the equity segment in delivery based trading.
Derivative Segment
Derivative trading can be done in four different ways – Future, Forward, Options and Swaps. In derivative you actually buy a contract that expires within a stipulated time frame. In derivative trading the stocks are bought and sold in lot. The biggest advantage of derivative trading is that you can get the lot by investing only the 30 to 40% of the actual price of the stocks that you will be holding. Moreover, you can gain by short selling the stocks as well that means you can first sell the stocks at higher price and then make profit by getting the stocks at lower price. The brokerage for derivative trading is generally lower than the cash segment if you consider the amount of investment and the number of stocks you hold.
After you get a rough idea about the common ways of doing stock market investment, you have to learn the charts and the skill of trading. The first lesson is learning the knowledge of Trends.
There are classified into four types which are secular trend, primary trend, intermediate trend and short term trend. Every short term trend has within it one to several intraday uptrend and downtrends. Every intermediate trend has within it one to several short term uptrend and downtrends. Every primary trend has within it one to several intermediate uptrend and downtrends. So too, every secular trend has within it one to several primary uptrend and downtrends.
Few rules
You must list some strategies to the notebook to tell you when to enter a trade and when to exit it. It is infinitely more difficult to decide when to exit a trade than when to enter it because it is at this time that you will either be making a profit or taking a loss! Here are some rules. You can learn more about stock market.
If there is profit on the table and the underlying stock breaks down or crosses below its 7 day moving average, take the profit.
Always exit the trade if you are at a 50% loss.
Always exit a trade if there is 30 days or less before expiration. During the month before expiration time decay can rob you blind of the value of your option.
I suggest you that if you are a really newcomer and keep much interesting in stock investment, you’d better learn stock trading on a virtual stock market. In virtual stock market, investors do virtual trade and invest with play money, but stock market conditions are real.
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