Stock investment is one of the most popular forms of long-term investment. Most of the investors usually enter into stock market investment hoping that they will earn ample returns within a shorter span of time. However, most of them fail to understand that it takes a good amount of hard work and research to earn a sizeable return from their stock investments. As an investor, you need to gain basic knowledge of the stock market, learn how to select a company and build your own strategies going forward.
Let’s understand the two types of stock trading investments:
Types of stock trading
As the name suggests, this type of stock investment is ideally suitable and favourable for most of the investors. New, as well as an experienced investor prefer this type of investment as it is less time consuming and has proven to offer good returns over time. When you invest for a long-term, the stock grows along with the company and offers decent returns. Investors should remember that patience is the key in case of long-term investments and they should let the stock play its own course. Also, when you invest for a long-term, there is a very small chance that your decisions will be affected by emotions.
Intraday trading works exactly opposite of long-term investment trading. In the case of intraday trading, the buying and selling of shares have to take place during the market hours. As an investor, you have to settle all the trading before the closing bell of the stock market at the end of the day. In comparison to long-term investment, intraday trading carries a higher risk of losing your money. Investors take advantage of the daily price volatility in the market and earn returns in case of intrading. One of the important things to keep in mind while getting into intraday trading is to choose stocks that have high liquidity. You must decide when to enter and exit the market in order to garner maximum returns. Also, it is important that you have enough information about the stock and sector to which it belongs. Make sure to keep a tab on its developments. Finally, you need to learn the technical analysis of the stock if you want to conduct successful intraday trading.
Here are some the best stock trading tips that you should follow as investors in India:
- A diversified portfolio is the key
Diversification is important for any type of investment. Having a diversified portfolio minimises your risk of losing a chunk of money in one go. You should consider a good number of stocks from different sectors and build a diversified portfolio invest. It helps you earn optimum returns on investments with minimum risk. Once you set your investment portfolio, make sure to monitor the stocks and buy or sell them accordingly.
- Know the company and its business
You must understand that at the end of the day, a stock is a company. Therefore, you should know what is the company business and how it makes money. If you can understand the basics of a company’s business, it will be easier for you to keep a tab on its peers and also on how the sector is performing. Make sure to invest in businesses that are well established instead of going for turnaround companies. As you become an experienced investor, you will get a better hang of selecting the right companies.
- Learn about the company fundamentals
One of the keys is to learn and understand the fundamentals of the company before investing in its shares. Simply following the price trend and history of the share is not enough as you also need to consider the future growth and potential of the company. Once you shortlist a company, it is time to know about things like balance sheet, profit and loss statement and so on. Learn about the cash flow of the company as it is more important than the income statement. A higher operating cash flow suggests that the company can sustain the capital investment. Focus on the valuation of a stock. Moreover, you should look out for the P/E (price-to-earnings) ratio as well the (debt-to-equity) ratio. The former shows how much stock investors are paying for each rupee of earnings while the latter suggests the amount of debt a company is using to finance its assets in relation to the value of shareholders’ equity. A company’s financial risk is also another determining factor that you should consider before buying the shares.
- Don’t follow the herd mentality and market gossip
You should never take your investment decision based on market gossip or tips. Make sure to stick to your financial goals and don’t make hasty decisions. Stay away from the market noise and don’t change your investment plans. Also, never buy a sell a stock because other people are doing it. Imitating stock investment decisions might not help you get the desired returns.
- Always invest only the surplus amount
As investing in the stock market comes with a certain amount of risk and uncertainty, you should invest only that amount which you can afford to lose. Therefore, it is advised to invest only the excess funds that you possess. It is important that you understand and evaluate your current financial condition and know your future goals. Be careful to notice that your investments do not negatively impact your other financial priorities.
At the end of the day, you should understand that the stock market is subject to change in respect with the market conditions. Therefore, it is not possible to predict the exact performance of the share on a given day. Investors who have been patient with their stock investments have gained from the market. Hope all the aforementioned stock trading tips will help you get started. You can research and gain basic knowledge from various blogs and websites like BankBazaar to learn about different stocks and their performance in the past couple of years.