HOW TO WIN IN STOCK MARKET GAME

One needs to know three parameters to generate profits from stock market:-

1)    What to buy?

2)    When to buy?

3)    When to sell?

For getting insight of these three parameters planning needs to be done which require following general principles in sequential manner:

GENERAL PRINCIPLES ONE NEEDS TO FOLLOW:

Step 1: Go where others don’t go/ Avoid following the crowd:

 People generally follow what others are doing without getting into the fundamentals of the deal. They do not do their homework (fundamental analysis) properly and also they do not study the charts (technical analysis). Generally, people invest money following the crowd without having any clue of what they are putting their money into.

One should never follow crowd unless one has done full research.

Try to find out stocks (by going through their profit and loss account and balance sheets) which may not be having high turnover but may have potentials. These stocks tend to perform in long run.

Step 2: Don’t over trust your broker

This may sound weird but it’s true.  Remember, brokers are meant to just execute your orders. Your broker’s goal is to generate more and more money out of you and they generally do it by getting you into more number of transactions. Brokers are not the once from whom advice should be taken.

Step 3: Trading is different from investing- There are no guarantees

Always remember that there lies difference between trading and investing. Trading basically is SPECULATING.  Have a long term time horizon once one want to get into stock market.

Step 4: Always remember you are dealing in real money- Don’t go by instincts and emotions

Sentiments or emotions have no role in the market. One should not take any decision by gut feeling. Proper analysis is must before taking any decision.

Step 5: Prepare a battle plan

Proper strategy must be made before entering into any stock. Well thought out strategy is essential for having high success rate.

Step6: Start with paper trading

Beginner should start implementing one’s strategy on papers first to know the consequences of strategy. Once one start generating profits on papers and develops confidence, thereafter real trading should be taken up.

Step 7: Don’t trade many different things at one time

Until one has proper experience, knowledge and confidence, one must avoid concentrating on number of stocks, options, commodities at one time.

Keep stocks under 5 to concentrate upon at one time because focusing on number of stocks can be tempting (if market is bullish) but temptation is always harmful.

Step 8: Prepare exit strategy- Minimize your losses and lock your profits

While devising strategy for making investment, exit strategy must also be focused upon so as to minimize losses and maximize profits. Stop losses must be fixed to minimize risk and profits must be booked/ locked at proper time.

  After keeping in mind these steps one needs to take decisions regarding what to buy, when to buy and when to sell these stocks.

What to buy

What to buy depends upon the nature of individual. Individuals can opt for policies that may be conservative, moderate or aggressive. Time frame for earning money in conservative policy is larger than aggressive policy whereas associated risk in conservative policy is lesser than in aggressive policy as in aggressive policy one is ready take risk in order to earn in short run by purchasing or selling volatile stocks.

a)    
Fundamental analysis

·        Buy high and sell higher- One must have heard that buy low and sell higher but that is totally theoretical concept. Practically speaking if one is satisfied with fundamentals of the stock, focus must be to purchase that stock if it is in upward trend and reaching new highs. It works as it is different from what others are doing.

·        Earnings per share reflect worth of stock not the price of stock- There are possibilities that due to artificial buying, interest or demand created by group of brokers or FII’s, price of stock may appear inflated but one must not get carried away by that price but focus on EPS.

b)    Technical analysis: Performance of stocks can be judged by the pattern of their behavior in past few days. Generally 50 days moving average is considered to be best for deciding the trend in which stock is moving or the trend it will show in near future.

When to buy

Best time to buy stock is when it is oversold i.e when number of sellers exceeds number of buyers. As stocks have tendency of balancing after being oversold, there are always chances that stock prices will bounce back after being oversold.

When to sell

 Never be greedy, decide on the percentage of profit you want and follow the strategy of selling stock when that desired percentage is realized. If the trend of that stock is bullish and the fundamentals of stock are sound, one can proportionately keep on selling the stock at regular intervals and keep booking profits so as to play safe game.