10 Tips for Market investment









1

Keep a Long Term Plan

If you are among those who think that long-term investment means buying shares at low prices and forgetting about them, you are taking a huge risk. The economic environment and market scenario are very dynamic. It does make sense to sell if the stock price appreciates too much above its value or if the fundamentals have drastically changed since purchase so that the company is unlikely to be profitable any more.

However don’t invest money which is required by you in less than 3 years. If you do so, you may need to sell your stocks for loss when market is not performing well. Short term investment may be detrimental to your wealth. Profits from Short Term Investment may not sustain in stock market. Your quick profit from one scrip could be offset by another.
2

Don’t Invest Borrowed Money

Before you can invest, you need money. When you invest borrowed money into stock market, you tend to make more mistakes than you do usually. You might expect quick profit to repay your loan and you might expect more profit% to pay off the interest on borrowed money.

Don’t start investing until you have six to twelve months of living expenses in a savings account, as an emergency fund.  Stay away from market till the time you save money for investing and spend your quality time on learning market.

3

Creating a Good Portfolio

Choose stocks of companies with proven records of profitability with at least some earning in each of the past ten years, pay at least some dividend in each of the past 15-20 years, at least 30 percent EPS growth over the past 10 years. A portfolio should contain different stocks from different sectors to minimize the risk and utilize the growth of different sectors.
An investor should review his portfolio at regular intervals. If the outlook of a company improves, or at least remains stable, he should buy or hold the stock. When the assumptions under which he bought the shares no longer hold true, it might be time to offload them.
4

Don’t be Greedy, Don’t Fear and Don’t Panic

These three important emotions drives the market. When greed sets in, all a trader can focus on is how much money they have made and how much more they could make by staying in the trade. However, there is a major fallacy with this type of reasoning. A profit is not realized until a position is closed. Greediness leads to Destruction.
When traders become afraid, they will sell a position regardless of the price. Fear leads to panic, and panic leads to poor decision making. Fear is a survival response. People have been known to jump off of buildings during market panics. By contrast, no one has ever jumped off of a building because of greed.
5

Don’t Buy on Margin

Margin trading is buying stocks without having the entire money to do it. The exchanges have an institutionalised method of buying stocks without having the capital through the futures market. Read this to understand What is Margin Trading?
Leverage is a multi-faceted and complex tool. Use of leverage can be quite profitable, but the reverse is also true. Your entire capital can be wiped out in a single trade. Be careful!!!
6

Practice with Paper Trading

Though paper trading is age old practice and very different from actual trading with real money, its recommended for novice trader to begin from this. It is a great tool if taken seriously. Trade stocks on paper before actually trading stocks with real money. Record your stock trades on paper, keeping track of dates of the trades, number of shares, stock prices, profit or loss, including commissions, taxes on dividend, and short or long term capital gains taxes you would have to pay for each trade. Calculate your net profit or loss less commissions and taxes for at least  1 year and compare it against the performance of index. Do not start trading with real money until you are comfortable with your trading abilities.
7

Don’t Buy on Expert Tips

No one can predict/decide the future of stock market. Learn strategies and techniques from experts but don’t buy anything based on their tips.

Thanks to cheap bulk messages, you might have received SMSes tipping you about a ‘golden opportunity’ to earn huge profits. If you have acted on any of these tips, you probably have lost some money. Success/Failure doesn’t matter, take your own decision. If success, be happy else learn from your mistakes. This is how you learn stock market. If you can’t take your own decision, don’t enter into stock market.
Always perform due diligence before placing an order with your broker.

8

Are you Tracking Global Markets?

There are many factors which impacts Indian Market such as Oil price, Dollar Rate, Gold Price, Key Interest Rate decisions from Federal Reserve Bank etc. It’s good to track US, European and Asian market conditions on daily basis.
9

Learn Fundamental Analysis

Investors should look at companies that have consistently delivered earnings growth and good corporate governance. Never invest in a firm without understanding the dynamics of the business. Try to understand the basic facts of company through Balance Sheet which reveals a company’s assets, liabilities and owners’ equity (net worth). Successful investors always base their investment decisions on a shares’ intrinsic value and hunt for bargain stocks. They will buy shares of a company with strong fundamentals when it’s beaten in the market and sell when prices surge.
10

Learn Technical Analysis

Technical analysis is a method used to forecast future trends of stock prices using past market data. It is widely used among stock traders and investment professionals. Technical analysts do not measure the stock’s intrinsic value but they use stock market charts to identify patterns and trends that may suggest future price movements.
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Different types of share trading

Day trading and Delivery trading (it is also called as investing) are the two main types of share trading.

• Day trading
Buying and selling of shares on daily basis is called day trading; this is also called as Intra day trading. Whatever you buy today you have to sell it today OR whatever you sell today you have to buy it today and very importantly during market hours that is between 9.00 am to 3.30 pm (Indian time). In day trading, brokers provide margin to do trading. Means you get extra amount for day trading. Suppose if you have 10,000 rupees in your account then you can buy and sell shares worth rupees 40,000(four times more - basically margin amount depends on your broker).

So if you use margin amount for day trading then you have square off your shares before market closes irrespective of share price or whether you are making loss or profit.
Please note - If you don’t use margin amount and trade only with your available amount then no need to square off your positions.

For example if the you buy some shares and the share prices falls then you can hold them and take delivery and sell them whenever the share prices increases.
Important note - New comers should not start by day trading as it is very risky.Day trading requires lots of knowledge including share, entire share market, global markets, news and many more parameters.
• Delivery Trading
In Delivery Trading, as the name say, you have to take the delivery of shares and after getting these shares in your demat account you can sell them at anytime (or you can hold them till you want, there is no restriction).

In delivery trading you need to have the amount required to buy share in other words you don’t get margin amount as you get in day trading

For example - If you want to buy 10 shares of Reliance at price 1200 than you must have (100x1200) Rs 12,000 in your account; once you purchased these shares will get deposited in your demat account (after trading day and 2 additional days). Then you can sell these shares when the price of these shares goes up or else you can hold them as long as you want.
Please Note - First you have to buy and sell. You can’t sell before buying in delivery trading while it’s possible in day trading which is called as short selling.