Saturday, November 20, 2010

Stock Market - Few Tips to Remember

Here are few tips to remember when you enter the share market...

1. Start with the amount of money you can afford to lose:

   Sounds kind of weird? But share market can give you lot of money or take a lot of money away from you. You never know what is going to happen - whether you will become a winner or a loser because the outcome is not in your hands. So until you become accustomed with the irrational (bulls and bears are not rational animals!) behaviour of the share market don't bet the money that you cannot afford to lose.

2. Have a proactive mindset about the trade/position you are going to open:

   Always think about both the worst case scenario and average case scenario (leave the best case scenario alone - don't think about that... if your trade goes to the best case then voila!... enjoy!). At first always think about worst case. In stock market too much optimism can kill you. Have a clear and sound strategy.

3. Have patience:

   Very important point. Just because your neighbour or your friend is rushing to buy a stock because it has gone up 12% in that day without any logic whatsoever, don't jump in the madness. Have patience. Patience is a great virtue and it can give you good amount of money in the long run. Learn to control your emotions.

4. Learn more:

   Start learning about stock market. Learn technical analysis. Learn fundamental analysis. Knowledge is power. Educate yourself thoroughly. Everything takes time. The stock market is alluring because it looks like a fast money-making tool. But beware. Dedicate yourself to learning more. Practice and have discipline.

5. Don't look at the money while you trade:

   Focus on the correct process. If you look at the money it may imbalance your decision making. Be emotionally firm. Observe the behaviour of the stock. Believe me when you look at the money and the constant fluctuations it interferes with your emotions.We often take profits too early or don't set stop-losses.

6. Strictly use stop-loss:

   Always use stop-loss to protect yourself from massive losses. Stop-loss is essential and should be there.

7. Don't be too optimistic or too pessimistic:

   Over-optimism will kill you and over-pessimism will not give you below-average return. Be happy with moderate return. But if there is strong indication that a stock price will go up and you are certain about it, then hold that stock.

8. You cannot make a lot of money too quickly:

   Accept this fact. You just cannot make a lot of money too quickly. Sometimes luck might favour you but smart is the person who knows this truth. Don't buy stocks in margin. Margin can wipe you out. If you have the expectation to make large amounts of money quickly, you will tend to ignore all reason and often put yourself in high risk situations which you lead to your demise.

9. Monitor few selected stocks:

   You just don't have to monitor all the stocks that are there in stock market. Select some sound companies and see the behaviours of those stocks. You will get to see patterns. Read about their recent business policy, acquisitions etc. This will not only improve your understanding of those stocks but will also be less confusing.

10. Learn from your mistakes:

   Your confidence is what matters. If you make mistakes (and most certainly you will! - we all make mistakes) learn from those mistakes. Study your weakness and correct them consciously. If you are wrong in something, admit it and learn from it. Don't get depressed or angry. Just know that it was the experience that will give you the added advantage because you will not make the same mistake again. I made a lot of mistakes and today I am glad that I made those mistakes. Just learn from your mistakes.

All the best.

Drop a few lines about your experience. I am all ears... comments

1 comment:

  1. its written in a very simple and lucid language which can be understood by will b a good guide