Trading can be defined as buying and selling of stocks in the financial market. There is no unique or single formula that can ensure consistent profit There is no unique or single formula that can ensure consistent profit. There are trading strategies, systems and many statistical tools that help in decision making but all these cannot guarantee complete success. A thorough knowledge of the basics of trading is a must before you venture into the market.
Trading can either be done electronically or on the exchange floor. However most of the trading is done electronically as it is a more efficient and a faster way of trading. In both kinds of trading a broker is required to facilitate the trading.
It is very important to realise that exact stock prices cannot be predicted, one can only make an estimate which might or might not be right. Stock prices are dependent upon political conditions, demand and supply of the shares, government policies etc.
For trading in the market it is important to make a plan and then follow it religiously. Even veterans in the share market can fail if they deviate from their plan. A plan will consist of strategies on when to buy a stock, when to sell, what to do if prices fall, the time horizon etc.
Choose stocks which have the highest growth possibilities and do not hold stocks when their growth possibilities are near the average value. In such a scenario it is advisable to switch to a more profitable stock after technical analysis.
Stock trading cannot be done without taking some risk, but it is always advisable to take a calculated risk and remember never to go beyond your risk appetite. Also do not put the entire capital in one stock but keep the portfolio diversified. At the same time it is important to remember that the portfolio should not contain too many stocks (especially for beginners) as it becomes difficult to track a very wide portfolio.
Although your daily profit may seem to be insignificant, it accumulates over a period of time. One cannot aim to become rich overnight with stock trading and it is always better to win small than to lose big. When calculating the profit it is required that transaction costs such as the bid-ask spread, brokerage fees, in case of online accounts annual fees etc.
Choosing the right stock is the basic that cannot be ignored, if this decision is not made carefully then any strategy or plan cannot succeed. Know the company and its management, what are the company’s future plans, how is it perceived by the analysts, how consistent are they and so on. You should invest in a company stock only if you are confident and not based on some tip or buy recommendation.