Navigating the Stock Market: A Beginner's Guide to Smart Investing and Trading Strategies
Imagine you are travelling on a ship, and suddenly your ship loses direction because of a sea storm. You don't know which way to go to reach your destination. The same thing happens when a person enters the stock market for the first time.
The stock market is like a big ocean in which it's a bit difficult to find a direction in the beginning. But with proper knowledge and guidance, you can navigate through them and find your destination.
It may seem similar to gambling at first glance. But gambling is betting or staking something for a gain on some uncertain event, whereas investing in stocks is a well-researched and calculative move.
Unlike any other field, learning about stocks and the stock market becomes quite essential to mitigate the risks and prevent suffering huge losses. As there’s a saying from the legendary investor Warren Buffett, “Risk comes from not knowing what you are doing.”.
To start learning about the stock market, it’s essential to know about investing methods. Investing in the stock market can be broadly classified into two types:
Value investing can generally be categorised as long-term investing. Value investing does not focus on getting immediate gains; it’s often done to get huge long-term gains. It’s buying shares and keeping them for the long term. Value investing is for a passive investor.
Value investing involves deep research about a company and its business. It involves fundamental analysis of a company, such as studying its balance sheet, P&L statements, cash flows, and various ratios. Hence, value investing is often termed a fundamental analysis as well.
Value investing often involves finding the intrinsic value of a company and then comparing it with the current market price. Based on the comparison, a judgement is made on whether the stock is overvalued or undervalued.
2.Trading:
Trading is short-term investing. Trading is done to capitalise on short-term gains. It’s buying and selling shares in a short time frame. Trading can be defined as a technical analysis. Trading mainly involves looking at charts, volumes, etc. Trading can be further classified into many types, such as futures, options, day trading, swing trading, scalping, momentum trading, technical trading, etc. Let’s get a basic overview of different trading types one by one:
Future and Options (Derivatives):
Futures and options are a form of derivatives often described as F&O.
A future contract is an obligation to buy or sell a specific asset at a specific future date.
An option gives the buyer the right to buy or sell an asset at a specific price at any time within the time frame of a contract.
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Intraday Trading (Day Trading):
Intraday trading, often termed day trading, involves the buying and selling of stocks within the same trading day. Investors in intraday trading aim to take advantage of short-term price movements. They often use charts, patterns, and various other indicators to identify opportunities.
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Swing Trading:
Swing trading falls between intraday trading and position trading. Swing trading involves holding stocks for a few days to a few weeks to capture short-term price movements. Swing trading can be less risky than day trading as it allows traders to take advantage of short-term market movements.
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Scalping:
Scalping is a trading strategy that involves the buying and selling of securities within a short period of time, often seconds or minutes. Scalpers aim to take advantage of short-term fluctuations in the market by executing a large number of trades to capture small profits.
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Momentum Trading:
Momentum trading involves the buying or selling of securities based on their recent performances. The main idea here is that the financial assets that have performed well in the past will continue to perform well in the future.
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Technical Trading:
Technical trading, often termed technical analysis, involves studying past price and volume data to predict future price movements. Traders often use charts, patterns, and indicators for performing technical analysis.
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Once we have an overview of an investing method, we can select the one that suits our best interests based on our risk appetite, rate of return, time horizon, and personality.
After the selection of the investing method, we can learn more about it in the following ways:
Follow the Best SEBI registered stock advisory company.
Follow the Most successful stock advisor in India.
Learn the concept of Margin of Safety to prevent catastophric losses.
Get an idea of which trading methods suit your personality.
Start with a small sum to gain the real experience of the market.
Analyse the stocks and market trends.
Go through the case studies to learn and to avoid making the same mistakes.
Read books and articles.
Value investing:
Trading
Value investing
