Many people see stock market as a quick scheme to make money. This is a misconception. While it opens the window to a lot of opportunities, one should be vigilant. Stocks hold the potential to offer decent returns to traders and investors. Several people who preferred this market have made their way with discipline, dedication, and careful research. The potential of stocks has placed them among one of the growing markets. Stock trading may appear challenging if you are new to stock trading. So, how does one make the stock trading journey productive? How do you protect yourself from the associated risks?
Stocks are volatile, and traders must develop a better understanding to judge the possible situation reasonably. A better understanding allows them to identify opportunities and risks. Here, through this blog, we will go through different aspects of the stock market and understand the offerings that may deliver the desired returns.
Stock Market-An Overview
Stocks are financial instruments with which traders and investors receive substantial ownership of the company whose stocks you are buying. Traders also refer to them as shares and equity. Stock trading allows traders to go for intraday and delivery trading. In delivery trading, traders get to buy and then sell the trades. However, with intraday trading, traders and investors can benefit from the rising and the falling market. The intraday market allows traders to go for a short-selling where they can benefit if they speculate the stock price will fall. Here, traders sell the stock at a higher price to open and settle the trade further by buying at a lower price.
Also Read: Stock Market – A Complete Guide
Significance of Analysing the Stock Market Landscape
If you want to earn money in stock market, you need to make an advanced move before the market price goes through a shift. Additionally, you must know the intrinsic value of a stock to determine the viability of the investment. To understand both, traders must conduct a comprehensive market assessment. Technical and Fundamental analysis are two techniques traders employ to conduct an analysis.
- Technical Analysis: Technical analysis involves making reasonable anticipation based on past and existing behavior of the stock. It involves judging the possible market behavior based on chart patterns, and the behavior of technical indicators, and taking some crucial factors like support and resistance levels, volume, and corporate actions into consideration. With the same, technical analysis allows traders to co-relate the existing market pattern with past trading activities and volume and make a sensible conclusion.
- Fundamental Analysis: Fundamental analysis emphasizes the finances rather than the past trading activities. Hence, it evaluates a stock’s intrinsic value through economic and financial factors. It takes several things into consideration, which include macroeconomic factors and microeconomic factors, like announcements by directors. It enables traders to evaluate the stock and judge the situation appropriately. It involves going through the balance sheet, cash flow, operational expenses, P&L, Debt-Equity, and more.
What Limits Your Growth as a Stock Investor?
The following are some trading malpractices you should avoid to continue with your stock trading:-
- Waiting for Trend Reversal: If the market is showing clear implications of a reverse price pattern, waiting for trend reversal can hinder both long-term and short-term trading experience. By waiting for prices to rise again, you may depreciate your overall capital and miss other opportunities simultaneously.
- Selling Frequently: Patience is the ultimate virtue of a trader. Stock does not remain eventful every day, and you should wait for the stock to reach its optimal value. Additionally, you must refrain from making a quick decision to sell when the market is going through a sideways trend. It safeguards your investments and keeps things intact.
- Neglecting Analysis: Analysis allows you to go through several market aspects and conclude by identifying potential opportunities and risks. If you make a trading decision without making a thorough assessment, you may have an adverse financial outcome from trade placement.
- Lack of Diversification: You must explore multiple options if you want to keep your trading experience consistently productive. It offers you the potential for improved capital enhancement.
Possible Ways of Making Money in the Stock Market
The following are some of the ways by which traders can capitalize their investments in the stock market:-
- Capital Appreciation: Traders can increase their overall capital by implementing suitable trading strategies for long-term and short-term capital gains. Traders may choose to implement their trading strategy after a thorough analysis, allowing them to make informed decisions.
- Dividends: Traders receive interest in holding the shares from certain companies. Traders receive dividends based on the face value of the shares rather than the market value. Additionally, they may receive cash or stock dividends based on the company policy.
- Bonus Shares: These are the rewards traders receive from the associated companies. Companies reward their stock investors with additional shares. It adds to the capitalization of traders.
- IPOs: IPO stands for Initial Public Offering. An IPO is announced by a company that wishes to launch its shares in the market. Traders need to buy the shares in the specified lots and get to purchase the shares in IPO through the lottery system.
- Derivatives: Traders may also prefer to implement their trading strategy by going to the derivative markets while keeping stocks as the underlying instrument. Derivatives include Futures, options, CFDs, and more. With stock options tips and tactics for other markets, traders can make informed decisions.
Frequently Asked Questions
Is Stock Trading Suitable for Beginners?
New traders must begin to trade after developing the needed proficiency and practical understanding.
Are Stock Investments Risky?
Yes, stock investments do involve risk, and traders must proceed with them after thorough analysis.
Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory. You are required to read all the necessary documents before investing.
