What is the Stock Market?
The stock market is the mechanism where the investors and traders buy and sell the shares of different companies with the help of brokers which are regulated by stock exchanges such as BSE and NSE.What is Trading?
Trading is the process of buying or selling financial instruments such as stocks, gold, and silver in the dematerialized form with the intent of making profits.Types of trading:
1. Intraday Trading: Intraday trading is a type of trading where buyers and sellers have to trade on the same day which means they have to buy or sell the securities on the same trading day, they can't hold the any assets overnight. In this type of trading, traders have to focus on profiting from short-term price movement.2. Swing Trading: It is a style of trading where the financial instruments are held for a longer period compared to intraday, which is usually for days or even weeks. It can be considered as the bridge between intraday and position trading as intraday trading is the short-term, high-frequency type trading and position is long-term type trading.
3. Positional Trading: Position trading aims to hold the assets for a longer period, generally for months or even year to aim for the high profit margins from significant price movement rather than short-term market fluctuation.
4. Futures Trading: It involves the buying or selling the specific assets at a predetermined price on future dates. Generally, it is the contract between two parties where they agree the terms of trade today but the exchange of assets and settlements happens at a specific future time.
5. Options Trading: it is the contract that allows you to have the right but not the obligation to buy or sell underlying assets at a specific price by a certain date, as in the case of the future which obligates you to buy or sell the assets. Options offer more flexibility than the future.
Instead of these types of trading, there are multiple markets such as commodities where you can trade in precious metals, agricultural products, livestock as well as energy. Also, there is another market called the currency market where you can trade in the currencies of different countries.
2. Ask price: The price that which seller is willing to accept.
3. Bid-Ask Spread: It is the price difference between the bid price and the ask price. Generally smaller spreads indicate that there is high liquidity and less volatility in the market.
4. Volume: Volumes are the number of shares that are traded on the trading day, higher volume indicates that traders or investors have shown more interest in the respective stock, also higher volume leads to more stable prices.
5. Market Order: An order to buy or sell the stock immediately at the best available current price in the market.
6. Limit Oder: An order of buying or selling the stocks at the desired price, this means that if the current market price doesn't align with our desired price the order will not get completed.
7. Support and Resistance level: A support line is a line at which the price gets the support which means it gets reversed multiple times and similarly resistance is the line at which the price is getting resistance multiple times.
.jpg "Essential Skills for Successful Trading:")
1. Understanding the Financial Market: Understanding the financial market and how the market operates for different kinds of assets such as stocks, commodities and currencies, will help a trader to become familiar with the performance of the market in which he or she wants to trade.
2. Technical Analysis: It is one of the leading skills that every beginner trader must learn this includes analyzing chart patterns, different kinds of indicators such as RSI ( Relative Strenght Index ), EMA ( Exponential Moving Averages ), MACD and also some other indicators. This analysis helps the trader to identify the future price movement according to the current patterns of the market.
3. Risk Management: Risk Management is an important part of the trader's life because it helps the trader to have a calculated risk so that he or she can minimize the potential losses in the market. An effective risk management strategy can help the trader to survive in the unpredictable and volatile market. Trader should know how much amount of risk they are comfortable with, they should know their risk-to-reward ratio. There is an important tool called stop loss which indicates that the trader should exit their position if the market doesn't go in their fever.
4. Understanding Trading Psychology: Trading is not just about predicting future trends according to the past performance of the market, it involves the combination of multiple things one of which is the psychology of traders. The unexpected market conditions can affect the sentiments of traders which could impact the decisions of a trader, so it is essential to understand the psychology of trading to make proper decisions without including emotions in decision-making.
5. Developing a Trading strategy: Don't matter how good you are at other technical aspects and how experienced you are at trading, there always should be a proper trading strategy. A good trading strategy guides the trader to avoid potential losses, to manage the risk properly, to make proper decisions without involving emotions and helps to generate good profits.
6. continuous learning: Continuous learning is an indispensable part of a trader's life as the market is a dynamic entity, there is always something new to learn in the market. Continuous learning helps the trader to adapt to the changes in the market, to refine their old trading strategy, to make well-informed decisions also to grow exponentially.
5. Options Trading: it is the contract that allows you to have the right but not the obligation to buy or sell underlying assets at a specific price by a certain date, as in the case of the future which obligates you to buy or sell the assets. Options offer more flexibility than the future.
Instead of these types of trading, there are multiple markets such as commodities where you can trade in precious metals, agricultural products, livestock as well as energy. Also, there is another market called the currency market where you can trade in the currencies of different countries.
Important terms related to the Trading:
1. Bid Price: The price that the buyer is willing to pay.2. Ask price: The price that which seller is willing to accept.
3. Bid-Ask Spread: It is the price difference between the bid price and the ask price. Generally smaller spreads indicate that there is high liquidity and less volatility in the market.
4. Volume: Volumes are the number of shares that are traded on the trading day, higher volume indicates that traders or investors have shown more interest in the respective stock, also higher volume leads to more stable prices.
5. Market Order: An order to buy or sell the stock immediately at the best available current price in the market.
6. Limit Oder: An order of buying or selling the stocks at the desired price, this means that if the current market price doesn't align with our desired price the order will not get completed.
7. Support and Resistance level: A support line is a line at which the price gets the support which means it gets reversed multiple times and similarly resistance is the line at which the price is getting resistance multiple times.
Essential Skills for Successful Trading:
.jpg "Essential Skills for Successful Trading:")
2. Technical Analysis: It is one of the leading skills that every beginner trader must learn this includes analyzing chart patterns, different kinds of indicators such as RSI ( Relative Strenght Index ), EMA ( Exponential Moving Averages ), MACD and also some other indicators. This analysis helps the trader to identify the future price movement according to the current patterns of the market.
3. Risk Management: Risk Management is an important part of the trader's life because it helps the trader to have a calculated risk so that he or she can minimize the potential losses in the market. An effective risk management strategy can help the trader to survive in the unpredictable and volatile market. Trader should know how much amount of risk they are comfortable with, they should know their risk-to-reward ratio. There is an important tool called stop loss which indicates that the trader should exit their position if the market doesn't go in their fever.
4. Understanding Trading Psychology: Trading is not just about predicting future trends according to the past performance of the market, it involves the combination of multiple things one of which is the psychology of traders. The unexpected market conditions can affect the sentiments of traders which could impact the decisions of a trader, so it is essential to understand the psychology of trading to make proper decisions without including emotions in decision-making.
5. Developing a Trading strategy: Don't matter how good you are at other technical aspects and how experienced you are at trading, there always should be a proper trading strategy. A good trading strategy guides the trader to avoid potential losses, to manage the risk properly, to make proper decisions without involving emotions and helps to generate good profits.
6. continuous learning: Continuous learning is an indispensable part of a trader's life as the market is a dynamic entity, there is always something new to learn in the market. Continuous learning helps the trader to adapt to the changes in the market, to refine their old trading strategy, to make well-informed decisions also to grow exponentially.
The most common mistakes that bigginer should avoid
1. Lack of proper knowledge and research: The novice or beginner trader would make costly losses by entering the market without proper knowledge. With improper knowledge, they won't be able to identify the future trends of the market to trade with accuracy by analyzing current market situations. So without any comprehensive knowledge, it is not advised to trade in the market.2. improper mindset: Almost 90% of the traders decide to trade by just having a look over the lucrative profits of experienced traders and this is how they enter the market with wrong expectations and mindset that they would also do something like experienced traders. Most successful traders advise that you come into the market with the expectation of doubling your money overnight, if you do so you will have to face the consequences. The healthy mindset for a beginner trader could be that " I just want to survive in the market for the next 1-2 years to gain the proper experience and have to trade with less amount of money just to gain the healthy experience and not to expecting unrealistic returns from the market."
3. Emmotional Trading: Trading is all about making proper decisions although it is not possible to make the right decision every time the frequency of making accurate decisions should be more than inaccurate how this is going to happen? just by making unbiased decisions means traders should not involve emotions in decision making and this is how emotional trading can be overcome. Although it is not as easy with practice traders can master it.
4. over trading: Over trading is a leading factor that every bigger trader should avoid because continuous exposure to the market can exhaust the trader mentally or even physically this can result in poor performance and also can lead to an increase in the level of risk so the trader should strictly adhere to their planning to stay away from overtrading.
Advice for beginner or novice trader: If you are also a beginner trader or even a novice at trading but you want to take the experience of real trading and want to learn the trading effectively without involving money in the beginning then you can go for paper trading where you get the real experience of trading with virtual money.
Conclusion: Trading is not just about mastering one thing, there are a bunch of things that you have to focus on to become a successful trader. It involves starting from technicals to mastering your emotions. In the end with a clear and healthy mindset, proper risk management techniques, proper strategy and essential knowledge it is possible to generate a good wealth with the help of trading.
"It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." _Rakesh Jhunjhunwala
FAQ's
1. What is the best way to become a successful trader?- The best way to become a successful trader is to follow the right path which includes: Having a proper knowledge of the market, continuous learning and adapting to the changes in the market following a proper system can be one of the best ways to become a successful trader.
2. Can a trader become a millionaire?
-Yes, not just a millionaire, an experienced trader can also become a billionaire by following a proper system.
3. Is trading safe or not?
- Well, it is safe for those who enter the market with essential knowledge, a healthy mindset, proper strategy, risk management techniques and the ability to continuously learn but for those who don't follow the required system, it is like gambling.
4. Who earns more investors or traders?
-It depends upon the goals of individuals, trading is a short-term process of making money from the market while the horizon of investors is bigger comparatively to the traders. Both of the professions have their own merits and demerits.
2. Can a trader become a millionaire?
-Yes, not just a millionaire, an experienced trader can also become a billionaire by following a proper system.
3. Is trading safe or not?
- Well, it is safe for those who enter the market with essential knowledge, a healthy mindset, proper strategy, risk management techniques and the ability to continuously learn but for those who don't follow the required system, it is like gambling.
4. Who earns more investors or traders?
-It depends upon the goals of individuals, trading is a short-term process of making money from the market while the horizon of investors is bigger comparatively to the traders. Both of the professions have their own merits and demerits.
