Can we really make money in Share market?

In short, making money and getting rich in the stock market is only for passive, long-term investors, say for a horizon of 5, 10, or 20 years, and not for the hyperactive daily traders .

We believe that stocks provide the best balance of risk and return. Stocks provide more than what bonds and cash have given investors over time.

Caution : Stock investors can lose their entire investment if something goes wrong, they can also reap amazing profits - if they find the best stocks for their money.

Ex: During Satyam crisis, I lost 5 years Profit over night, which wasn't expected from Satyam. Risks are driven by Business ,market and Politics and etc.

Let’s see some of the Strict rules and guidelines to follow to make some profits.

Rules : We will add few more during the learning.

Rule 1: When someone promised quick profits, respond with a quick “NO”
Rule 2: Follow Strict Stop loss if you are trader. (Explained the difference between Trader and Investor in next section).
Rule 3: Avoid stock tips. Do your own research and do not seek or pay attention to any stock tips, even from insiders.


Guidelines:
1. Never buy a stock right immediately after a substantial rise or sell after a substantial fall.
2. Invest regularly and systematically .
3. Only invest money you can afford to lose!! Sure this is a basic point, but many many people miss it. You should only invest money that you can honestly afford to lose!!
4. Control the Greed. Most of us have a desire to acquire as much wealth as possible in the shortest amount of time. This get-rich-quick mentality makes it hard to maintain gains and keep to a strict investment plan over the long term.
5. Reinvest whatever you get from your investments, whether it is cash dividend or bonus shares. Make investing a never-ending process.

How does share market work? .

Stock prices change every day because of market forces. By this we mean that stock prices change because of “supply and demand”. If more people want to buy a stock (demand) than sell it (supply), then the price moves up!

Conversely, if more people wanted to sell a stock than buy it, there would be greater supply than demand, and the price would fall.

But then again, nothing comes free. Everything has a price. You will have to loose some money, make some bad decisions and then only will you really understand the market. You cannot understand the market by just looking at it from far. By following these rules, you will basically not loose too much!

Minimum capital: Only those with a capital of at least Rs 2 lakh can trade for a meaningful gain. However, this capital should not be borrowed and should not be part of your core savings. People can also trade with less, but volumes are important. So, a certain minimum capital is a must.


Final Secret:
You can’t make money consistently by trading daily in the stock market You will be losing more than what you make by trading often. In short, you cannot win the daily bread and butter in the stock market or one fat buck in a single shot .

Do you think you can immediately start trading with all these tips? The answer is "NO". One needs to develop a few skills, including the ability to understand technical analysis. "Trading is a simple process, but not easy"

Welcome to thread .Your suggestions, feedback , comments and are welcome.

 

Difference between traders and Investors? .

Investors seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter timeframe, taking smaller, more frequent profits . While investors may be content with a 10 to 15% annual return, traders might seek a 10% return each month.

Bitter Truth: No one will be rich by trading successfully daily in the stock market . But, there are many rich people , who has been successfully investing in the stock market for the past 10-20 years .


Stop Loss : Stop loss is a buy or sell order which gets triggered automatically , once the stock reaches a certain price. The aim here is to limit the loss on a security(buy or sell ) position.

Ex: If you have bought 1 share of ACC at Rs.1225, you will enter stop loss order at below Rs.1225, say ,Rs.1200. If ACC share price falls to Rs.1200, a sell stop loss order will be triggered , which limits your loss on account of purchase to Rs.25 . While entering a trade, you should be clear about how much loss you are willing to accept.

No hard rules for stop loss value. Traders deploy stop loss whereas investor doesn’t trigger stop loss.

Blue Chip: A company that has a history of solid earnings, regular and increasing dividends, and an impeccable balance sheet. Examples:Infosys,SBI n etc.

Can we Practice before going into real trading ?.

Yes. Trade stocks on paper before actually trading stocks with real money. Record your stock trades on paper, keeping track of dates of the trades, number of shares, stock prices, profit or loss, including commissions, taxes on dividend, and short or long term capital gains taxes you would have to pay for each trade .

Suggestion : Try with Moneybhai money control website for online tracking for virtual trading. They give 1 CR virtual money to trade and learn.

 

For ex , If you buy share of ABC for 100Rs, actual cost of the Share is 100Rs + X value.

X value is : Brokerage + STT + Service tax + Stamp Duty + Transaction charges.

All the above charges depends on the Broker and NSE/BSE.

Brokerages are different from Daily trading and Delivery based trading. Usually Delivery based trading is 10 times more then Daily trading, which is nothing but Intra day.

For ex:
Intraday : Brokerage is 0.05%.
Deliver : Brokerage is 0.5%

ABC Brokerage value (Intrad day) : 100rs + 0.05% of 100rs. => 100.05 .
Other charges : 0.05
total Buy value is : 100 + 0.10 => 100.10 Rs.

Now share price increased to 101 Rs.

Sell Brokerage is same as 0.10% (0.05 (brokerage ) + 0.05% of other taxes)) => 101 * 0.10 .

Actual Sell value is 100.899 Rs.

Actual Profit is 100.899 -100.100 = > 0.79 rs/share.

The above example is illustration. The charges will vary from each broker.

Delivery also can be calculated with 10% of the above brokerage values.

 

Thanks RP. Please contribute to the thread . I know, you have lot of learnings in this area.

 

Thanks Rajani. With RP's help, we will contribute more and more here...This topic have endless learning's..

 

I like this and admire him..if you get time you can read [h=1]"The Warren Buffett Way" Book...[/h]