How to Trade and Make Money
Everybody wants to make money nobody wants to lose money. Sadly, some people venture into stock market – thinking that this is the short-cut to making money.
So let me start this blog on a lighter note – “The main purpose of the stock market is to make fools of as many men as possible” – quoted by Bernard Baruch, a famous American business-man cum stock investor in the early twentieth century. The quote is picked from brainyquote website.
To testify the above quote, it has been widely believed that only 5 per cent of the traders (not investors) make money (profit) in the markets while the rest 95 per cent end up been losers.
Let me clarify here – that traders are people who buy and sell shares with very short-term perspective – like day-trade or week trade or sometimes say for 10-15 days or even a month or so. Whereas investors are people who buy shares and hold them for minimum one year, and at times years together believing in the company’s long-term fundamentals, growth story and in turn generate wealth for them-selves and also benefit from the tax-free dividend. Unlike the investors who rely on the fundamentals of the company, the traders prefer to trade based on either market sentiment, news based events and charts.
Hence, no wonder that maximum number of traders lose money as markets tend to be very un-predictable. Let me quote William Feather, an American author from the same era as Bernard Baruch – “One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute”.
So how do I guarantee to make money by trading in the stock or commodity markets, when only 5 per cent of the traders at to win. The secret to make money is to get into the 5 per cent of the winners camp. And to do that, one needs to follow strict discipline in terms of trading strategy. We may find hundreds of people with tons of experience (10 years or 20 years) of trading in the markets, yet making losses at times – If you ask them one question why or how did the trade go wrong. More often the answers would be I forgot to put the stop loss, and continued to hope against my belief that the trade was going wrong. Hence, the one of the foremost condition to be successful – is to accept that you can be wrong at times, and whenever you are wrong be strong enough to accept it and bear the losses. This is possible only if the stop loss is placed well in advance.
The second practice – would be to have / devise your own strategy for trading and sticking to you. Every trader will have some strength and weakness, it always better to identify ones strength and develop a strategy based on tired-and-tested method by him-self, rather than blindly follow trades based on news, rumours and other expert advices (including myself).
The third and finally practice should be to avoid over-trading. Over-trading or over-leverage is like digging your own grave. The moment you exceed your risk taking capacity and capacity to bear losses, your mind is likely to stop functioning rationally, and your emotional side behaviour will weigh heavier – which in turn would result into mounting losses.
Trust me friends, if you start practising even two of the above three mentioned practices you winning ratio will automatically become favourable – remember – discipline (Stop loss), own strategy and no over-trading. One of the prominent business houses of our times say – Make money not mistakes. With no intention to harm image of the reputed business house – I would like to tweak the punch line to – Learn from your mistakes and you will end up earning money.
Now about my subject line – How to trade and make money – Soon I shall start giving trading advice in select stocks – and shall track a portfolio of the same, with a phantom investment of Rs 100,000. To make things simpler – I have select ABCD – ACC, Bharti Airtel, Cipla and DLF – which means I shall give trading calls, and trade only in these four stocks as and when a trade is identified. The entry point, stop loss, target and revised target if any will be notified in the series of blogs that will follow as – The ABCD Portfolio – so keep watching this space for my trades, first see them; they try it and benefit from the same.