By Vishweshwar HS, www.showmytrade.com
The stock market is an enriching and income-generating activity. Like any profession – doctors, engineers, chartered accountants, etc., or any business engaged in commercial activity. It is vital to learn and understand all aspects of the stock market. More importantly, understanding and managing the risk. If not, we will considerably lose our hard-earned money!
The stock market has high volatility (high movement up and down) and sideways movement, and we can use various instruments to invest or trade. But we all have differences:
These depend on income level, age, time availability, and ability to take risks of each individual.
Let’s know how to learn and master the art of investment or trade.
Professionals like doctors, engineers, etc., have to undergo severe education or training. So do the investor or trader!. Although we learn practical aspects of Trading at this stage, we should refrain from actual Trading. But we can do paper trading (what you learned should writedown on paper with the actual market and see what result you get) or simulated Trading. Understanding dynamic market movement, risk-reward, leverage, rules of the exchange, etc., has practical difficulties for the first-timers in the stock market. Learn more about the stock market – attend online /offline training, read stock market books, train on youtube videos, etc.
One can earn money from the stock market in two ways.
Long-term: Using fundamental analysis with the purpose of wealth creation. Investment is identifying a good growing business and investing for 4-5 years. We expect anything above ( Bank interest (7-8%) + inflation (4-5%) + Investing premium 4-5%)) approximately (15% to 18% CAGR), with (2-3%) risk. This method is called Investing. Some of the concepts are Value investing, Growth investing, etc.
Short-term: Using technical analysis to earn monthly income. This is a process of learning technical analysis, charts, and edge (high probability trade) with a risk to reward ratio for anywhere between a couple of minutes to a few months. We can expect 3-4%/month kind of returns and high risk. If we do not manage our risk, we may also lose most of our capital! This is called Trading. Some of the concepts are Price Action Trading, Indicator based Trading, market profile, etc.
“Slip between cup and lip.” At this stage, we understand the actual practical difficulties of Trading. We have all training and knowledge to be understood – figure out what type of trade only we trade? Our ability to risk? And patience and perseverance, one needs to be a successful trader!. In this stage, we only put little money and trade with a small quantity to understand the market and, more importantly, our strengths and weaknesses. Generally, our idea of getting rich quickly in the stock market will convert into “small but consistency earning”! The stock knowledge, software, trade setups, etc., will not be used unless we practice our skills and improve our trading skills.
At this stage, we have a trade execution plan, entry and exit with risk to reward trade, position-sizing, trading journal, and continuous education ourselves to be a better trader. At this stage, we are committing a large sum of money and can live on earned money from the stock market. At this stage, we can learn to manage our risk very well. The execution of trade will be more fluent. Any trade will not unnerve us as our risk measure will take care. We also improve our risk 1:3, 1:4, etc., find the actual significant earnings over the period!.
After visiting this blog, decide for yourself, are you the investor? Or a trader?. Kindly share and comment on this article.
