How to Earn Money by Trading in Stock Markets
You can Earn Money by Trading and via Investments in Stock Markets. In this post, we will concentrate only on trading in Stock Market for returns.
Trading is just buying at a low price and selling at a high price. This simple definition is often forgotten by many once they start trading in stock market. So always remember that the goal is to make profits by buying low and selling.
You can buy individual stocks, future and options. The prices of these change very quickly based on market expectations and investor emotions. Also, you can buy and sell within a short time like few minutes or within a day or a long time like few days, weeks or months. Depending on the time duration of your trade your trading strategy should change.
Tips to Earn Money by Trading Stocks
While trading in stock markets you can first sell and buy later if you think the price is high now and will decrease later. Also, your broker might end up lending you with a margin so that you can trade several times your margin amount which means your profits will increase several times. However, you should very careful not to over-leverage your margin amount since not only profits but also losses will be multiplied too.
Also Read this– Earn Money by Investing in Stock Market!
- If you are trading for a short time then you should do a lot of trades to generate enough profits. Also whenever you are trading make sure you sell at least at a certain price point where your investment and your taxes, fees etc are also covered. Otherwise, though you might sell at higher than your buying price due to fees, taxes your net profits might be negative.
- If you are day trading make sure you keep an eye on the daily news. Any big event can have a tremendous impact on the markets and markets often react in a seemingly irrational way. Also always cut your losses short of protecting your capital is very important. It is advisable not to invest more than 5% of your capital in any single trade. Also, it is advisable to buy first and then sell. Short selling is not advisable since stock market collapses very quickly and often stays that way for a longer time than the duration of your trade. Also by going long if your trade is not working in your favour, you can just keep the stock for several day or months until you get your capital back and may even end up in profits. But with short selling (selling first) you don’t have that option. You are forced to buy at present prices no matter how unfavourable they are.
- Also if you are holding for a few days or weeks or months make sure you always have a log book where you keep your predictions and estimated prices where you intend to sell so that emotions don’t catch up with you when you are looking at the charts every day.
- Also always have a stop loss enabled depending on your financial situation and personal nature regarding risk. Never bet everything you have in hopes that you might see favourable price movement. Many lost try to go against the trend because the stock market trend can go on for a long time and bankrupt you if you are not careful.
- Never sell options. Always buy options. Selling options might be profitable but one wrong prediction will wipe you out of the market. By buying options your loss is capped at the price you paid for it and your profit potential even though rare is unlimited.
- Finally the most important is that you should trade with money you are ready to lose. Never trade with borrowed money and never trade with money you kept aside for some other purpose. Only trade with money you can afford to lose and sleep without worries.
This article is a guest posting from Ex-Banker, Financial Planner Sohith Agepati, a member of IIBF and active Stock Marketer. Sohith.com is a place where he blogs.