How many times have you bought a stock on someone’s advice to make a quick buck and waited for months, may be years, to just recover your cost? Share trading, experts warn, is a risky game. However, it’s possible to play it smartly and make a quick buck as well, they say.
While traders do make as well as lose money, whether this activity suits you depends on your financial position.
You can trade in shares and commodities. However, in India, retail investors mainly trade in stock futures and options due to sheer volumes. Trading means buying and selling a stock the same day or holding it for just 2-3 days. The former is called intra-day trade. The latter is called swing trade. Positional trade generally involves taking a longer position and holding a stock for 2-3 weeks.
Profits depend on risk management. “I have been in the market for 10-12 years and I have seen that people do make money by trading shares,” says expert.
This depends to a large extent on how much capital is available, how many opportunities you can explore and your knowledge of technical analysis.
While any recipient of the so-called ‘hot tip’ can trade, making money consistently is possible only when you have sufficient knowledge of the markets and skills for technical analysis, which is the science of forecasting prices based on historical data.
While one can get many trading tips, their execution is important. One of, master instructor says, “It’s a battle of emotions. Trading is simple, but not easy. You have to be disciplined.”
The key to success is a stop-loss order. Stop loss helps a trader sell a stock when it slides to a certain price. Suppose you buy shares of company A at Rs 100 and set a stop loss at Rs 95. When the price falls to Rs 95, the shares will be sold automatically. This means you have limited your loss to Rs 5. While entering a trade, you should be clear about how much loss you are willing to accept.
One should identify a few stocks and focus on them.
Only those with a capital of at least Rs 2 lakh can trade for a meaningful gain. However, this capital should not be borrowed and should not be part of your core savings. People can also trade with less, but volumes are important. So, a certain minimum capital is a must.
A stock should have enough volumes for it to be tradable. According to Zelek, it should have a minimum daily average volume of 500,000 shares. For those just starting, trading Nifty-50 stocks is a good idea, he says.
What should you do with a share which has high volumes but not much price movement? You should prefer shares with a minimum price range of Rs 10. This means the average difference between a stock’s intra-day high and intra-day low should be at least Rs 10.
Look for the most volatile market timings. Derek says 9.30-11.30 am is a good time to trade in Indian stock markets.