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Selasa, 03 Februari 2009

For Beginners: HOW TO INVEST in STOCK MARKET and be RICH?

How to invest in Indian Stock Market?- Bear and BullThe journey of an investor - right from the point when she/he starts wondering about questions like "How to invest in Stock Market?" "How to Buy Stocks?" to the point where she/he reaches the stage of actually making a regular healthy income from the stock market investments - is quite interesting. The goal of this post is to give a glimpse of this journey to those who are right at the starting point and wondering "How to invest in Stocks?"

As an investor you will have to go through several stages.

How to trade stocks?Stage 1: Learning how to buy stocks? Opening Online trading account.
Opening a trading account to actually be able to buy and sell stocks is the first step. You will have to sign up with an online broker. After you sign up you will have to learn to use the trading platform of that online broker to buy and sell stocks. If you are in India, you will also have to apply for a PAN card and then open a Demat Account.

Stage 2: Learning the Stock Market Jargon.
For this my friend you will have to do lots of reading. You must know what is a stop-loss order?, what is P/E ratio, how to roughly evaluate a company? and lots of similar stuff. It cannot be written in a single post but is not difficult at all. If you have difficulty in figuring out the answer to any of these leave a comment and I'll try to help you. However, i suggest learning and side by side also making small investments to figure out actually how things work. Otherwise it is just boring to keep reading and reading without actually buying stocks.

Stage 3: Choosing your style of investing in Stock Market.
Choosing the best style of investing in stock market that suits you is perhaps one of the very important key to big success. There are several styles.
  • Intraday Trading (buying and selling stocks or shares on the same day)
  • Swing Trading (buying and selling with a gap of a few days waiting for price to rise and fall etc.)
  • Value Investing (buying well chosen stocks with a long term - 5years ? viewpoint)
  • SIP Style Investing (type of value investing in which you invest a small amount at regular intervals) etc.
For example, Intraday trading does not suit me at all. I think anyone who has a full time job and cannot take too much adventure and daily stress should avoid Intraday. I am much better and comfortable with swing trading or investing from the long term point of view. However it may suit you and you have to do some trial error to find out your own style.

Stage 4: Making a loss - learning some discipline - making regular income
I dont believe you can be a mature investor until you have made some losses and learnt lessons. Well, not that I am trying to tell you to make a loss :) It is anyway going to happen some day. Making an occasional loss is part of the game. What you have to do is try to develop a method to cut your losses. Surprisingly it takes a lot of time for people to realise that a systematic method or plan is needed for investing in stocks - for example your own predecided plan of when to buy a stock , when to book profits, when to quit and accept a loss etc. In my experience sticking to an investing plan is more difficult than making one. Ofcourse you will have to keep modifying your investing strategy and make it better and better. But it is important to have a strategy before you enter a trade. Only those who make and stick to a investing strategy succeed in making regular monthly income from stock markets. Others make occassional profits and occassional losses but perhaps very few of them actually become rich in this way.

Stage 5: Advanced Stage - learning some more advanced language.
After you have learned and mastered the art of investing in stocks you will have to, at some point learn about advanced risk management and hedging techniques using Futures and Options. These are very useful from my viewpoint, especially if the size of your investment is very large. In this post I wont discuss anything about hedging strategies but just would like to point out that there is still more to do after Stage 4.

In all your above journey what will be most important to make judgements about a stock - and also judgements about the economy as a whole. It is best in my opinion to select some investing bloggers you like and try to follow them regularly.
I wish you all the best and happy investing !
This post was selected for Carnival of Personal Finance #191.

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