Analyze how to be profitable in stock market, how to make money in stocks, what should be the strategy and psychology in the stock market specifically for beginners.
We all come to the stock market to make profit and gain some good amount of money. But making money in the stock market is not so easy and this is always a subject of concern for beginners in the stock market. We all know “Stock Market Investing is subject to Market Risk”. If we can minimize the risk then we can achieve a good amount of profit. For which we have to analyze the risk and reward ratio before making any decision and take calculative risk. This is not a luck game; we need a lot of effort to be successful and to be profitable in stock market.
Table of Contents
- There are no easy and quick money
- Avoid tips & learn the basics
- Decide your trading style
- Short term trading is tricky
- Long term investing is always not risk free
- Track macroeconomic factors
- Good results need some time
- Then who gains profits in the stock market ?
- Summary
There are no easy and quick money
Most of the beginners think they will make a quick money and become millionaire in few days after investing in stock market, so they play in the market like game or like gambling because they trade without any knowledge, take tips from friends, from social media or from anyone and blindly follow them. Sometimes they might get profit and sometimes may lose. They did not know if it would give profit or not. Due to this type of psychology most of the beginners lose money in the stock market. Various researches says that 90 percent of the beginners lose money in the share market. Generally beginners did not know the proper way to make money in stock market. So what should we do to be profitable in stock market?
Avoid tips & learn the basics
Most of the beginners buy stocks by asking their friends, taking tips from brokers or news channels, social media etc. It is good to acquire knowledge from all sources but it is not good to blindly follow them. They even don’t know what that company is doing whose stocks they have purchased. So how could they calculate the future performance of their portfolio stocks? They only focus on price and wish someone tell them about which stock is going to up and they will make profit from it. This way one can’t survive in the stock market for long time, one day when they will get huge loss then they will leave the market and will blame stock market is gambling. In order to survive and make profit consistently in the market we have to learn at least the basics of stock market, trading and investing.
Decide your trading style
It is important to decide what our goal is. How much time, money & efforts we can invest and how much return we expect and always be practical. According to these things which type of trades we should take or whether we should focus on long term investing. Most of the beginners even don’t know which stocks to invest and how to select stocks to invest or trade. In which stocks we can trade and in which stocks we should invest for long term. In case of long term investing we have to learn how to analyze stocks, how to analyze their valuations, financials and fundamentals. And for trading we have to learn technical analysis thoroughly in order to identify short term entry and exit points in stocks.
Short term trading is tricky
In the short run it is difficult to guess the price movement of any stock or indices. Short Term Trading is not so easy because we have to check a lot of facts before taking any trade or to select a good trade. There are a lot of things that can affect the price movement of any stock. Like
- Movement of the broader market
- Movement in the International markets
- Any news related to the stock or sector
- Positions of big players in that stock
There are a lot of mobile apps and financial websites which can help to regularly track these things or we may follow some good social media influencers, YouTube channels, Instagram or Facebook pages but should not blindly follow anyone and cross check their credibility.
These things we have to check before making any position and also during holding any position. Because market scenario can change anytime for which we have to hedge our position for risk management, otherwise we have to book loss. And in case of margin trades (Futures & Options, Intraday) our profits will be in multiples and our losses will also be in multiples. Therefore beginners should avoid short term and margin trading and focus on positional trades or long term investing.
Long term investing is always not risk free
Some analyst says that just invest in good stocks and forget them for long term, but this is not a good way of investing at least at this age of rapidly changing global environment. So after making an investment we should regularly check how our portfolio stocks are performing. All companies release their business reports after every three months. We should check their quarterly and yearly results. We might not deeply analyze the financial reports if we are not from commerce & finance background but with some common sense we can have an overview about how is the company’s performance in present and how could it perform in near future.
Track macroeconomic factors
We should also regularly track the news and events what is happening in the financial markets, changes in Govt. policies, tax rates, interest rates etc. that may affect our portfolio stocks and we have to check if the reaction is for short term or it may affect for a long time. In this way we can decide when to exit a stock. So we have to spend some time in research about the stocks in our portfolio and the overall market condition.
Good results need some time
Patience is the most important thing one stock investor as well as a trader needs to be successful in the stock market. Good businesses will definitely grow in future but they may take some time to prove themselves.
We all know that the stock market moves on the basis of investor sentiments. If the majority of the investor would be in panic then they will sell and the market will go down and if the majority will be in greed to buy then the market will go up. Then why do the majority of people make losses in the stock market? Because when the majority of people come to know about any good news or good stock and run to buy it, the price of that stock has already gone up. Some wise investors had already made their positions in that stock. And after achieving their target profit they start to sell that stock to book profit and the price goes down. Then the majority of people start to sell in panic and book loss. This is why the majority of people get loss in the stock market.
Then who gains profits in the stock market ?
A few wise investors who have good resources, analysis skills and patience, They wait to buy a stock until it comes to a good valuation, buy and hold stocks until they reach their target level and timely book profits. Most of all they make proper analysis before entering a stock without buying in greed or FOMO, have confidence over their study and hold with patience without getting panic to sell.
Summary
So on the basis of learnings, lessons and experiences we have gained from the market, in our view we need at least three things to be profitable in share market.
- Knowledge – We must have the knowledge about how the stock market works. At least we should know the basics of stock market before entering in to it and as we spend more time in the market our experiences will teach us a lot of knowledge about how the markets actually moves. But till then we have to at least save our capital in order to survive in the market.
- Research – We have to regularly track the market, different sectors, stocks and our portfolio. That will increase our knowledge and experience and we could have confident on our analysis by which we can take right decisions on right time and on our own. Most important factor to become profitable is minimizing losses, because we know the famous quote “The penny we save is the the penny we earn”. Our knowledge and research will teach us how to minimize our losses.
- Patience – Most of the investors book losses due to panic selling. This happens because they don’t have confidence on their own analysis and don’t have enough patience. Warren Buffet says “you must have the patience to see your portfolio in 50% loss”. Therefore we have to hold good stocks in our portfolio if we have confidence that they will grow in future. Until we book any loss, that will not be our actual loss, that is only a notional loss. And when after few days or months they will rise we will have a good amount of profit. This is all about holding fundamentally good stock although they fall due to any external issues or panic selling in the market.
If we focus on these things then we will definitely make money in the market in long run and will never blame anyone neither ourselves also for any losses in the stock market.
This article is only for a basic knowledge about stock market investing and for educational purposes only, not any type of recommendation. In case you need any professional advice please consult your financial advisor. That’s all in this post, if you like our post please share with your friends and thanks for visiting our page. Wish you all happy investing.
