By Vishweshwar HS, www.showmytrade.com
Welcome to the fantastic world of the Stock Market. Let’s learn, understand, and acquire new skills to make money work for us. How to Invest or Trade in the Stock Market – helps us to realize our dreams from the stock market. More essentially earn an additional extra income along with our current job or professions.
This article is written for those persons who want to learn and invest or trade themselves. Many people are interested in the stock market but don’t know the knowledge or information about the fundamental basics of the market.
There are two ways we can earn money from the Stock Market based on the duration and philosophy of investing.
Purchasing shares of a company with the idea that such stock provides income (dividends –if any) and selling shares at a higher price for making a profit. Though there is no fixed time to call the long-term, usually for 4-5 years duration. Accumulating a large sum of money in the long term is called “Wealth Creation.”
No. There is no guarantee of earning money from the stock market. Even some of the companies’ prices may come down considerably resulting in huge capital loss.
What type of company will appreciate many times of their original investment? Finding answers, we need to research the stock, using “Fundamental Analysis.”
Fundamental Analysis: Scientific study of the essential factors which determine a share’s value. The essentials of Fundamental Analysis, study the industry and the company’s sales, assets, liabilities, debt structure, earnings, products market share, evaluates the company’s management, compares company with its competitors, and then estimates the share’s intrinsic (fair value) worth. The tools include financial ratios arrived at by studying the company’s balance sheet and Profit and Loss Account over several years.
As the company grows, the Investor can enjoy dividends, bonuses, rights issues, buyback, stock split, mergers, etc.; thus, the value returned to their investment increases. Such performing companies will be re-rated, and the share price be enormous!
Let’s take some examples of stocks return handsome rewards,
| Investment | Then | Now |
| Maruti 800 in 2003 (instead if we buy 1600 shares of Maruti | 2,00,000 | 1.18 Crores (CMP 7400) |
| Royal Enfield Bullet (instead if we buy 625 shares of Eicher Motors | 1,35,000 |
1.33 Crores (CMP 21400) |
Fundamental analysis consists of a systematic series of steps to examine the investment environment of a company and then identify opportunities. Some of these are:
Some of the investment styles are:
Purchasing and selling the stocks for profit for a short duration is called Trading. In Trading, we can capture the movement of both upside (long) and downside (short) of the market movement. The trading duration can be a few minutes, hours, day, week, and a few months. Trading is done, keeping in mind only the demand and supply of the stock. Traders do not worry about long-term fundamental factors. Trading with a high risk for superior returns is called “Income Generation.”
Then, what type of trade and how to make such Trading? Finding answers to this question, we trade the stock, using “Technical Analysis.”
Technical Analysis: A method of prediction of share price movements based on the study of price graphs or charts. The assumption that share price trends are repetitive, is that since investor psychology follows a particular pattern, what is seen to have happened before is likely to be repeated. The technical analyst is not concerned with the fundamental strength or weakness of a company or an industry and is interested only in price behavior.
Technical Analysis is studying the demand and supply of stocks, indices, commodities, future, or any other instrument which has historical data. It uses patterns, indicators, and various other tools to analyze.
Some of the trading styles are:
Investing and Trading is an entirely different activities. The stock market knowledge, investing or trading skills, practical problems while investing or trading, capital to invest, risk capacity, time availability. Is it a significant factor in deciding whether you want to be an Investor? Or Trader?
As an Investor, you need to know about Fundamental Analysis, Style of Investment, which suits your capital investment, duration of investment, and return on investment. The risk associated with investment etc.,
As a Trader, you need to know about Technical Analysis, Style of Trade, availability of time, Technical know-how, more importantly, using leverage (exposure) and risk associated with it.
Are you an Investor and Trader decide yourself. Thanks for reading the article. Kindly share your feedback and comment!
Related Article: 3 Stages of Learning the Stock Market?
