To become a good investor, one has to acquire a knowledge of stock market. One cannot become an expert until he/she has in-depth knowledge of the subject. There are around 7000 companies listed on the stock market. You will get confused. You should know how to filter out the best stocks from the crowd. For doing this you should have adequate knowledge of the market. I am getting so many queries over e-mail on how can I become a Successful Investor in the stock market?
Fundamental analysis and Technical analysis are the tools which can help you to filter out stocks. But for doing the fundamental or technical analysis you should have the knowledge. There are many websites available who are offering this knowledge for free. Go there, acquire adequate knowledge of the market then try your hand in the market.
I believe and both play an equal role in choosing the stock. Stock picking is much more than imitating what others are doing or what you heard on TV channels. Stock picking is the science which has logic and data(past trend) behind it.
Fundamental analysis gives you conviction to not only buy the stock but holding it on during the storm. Because you know that the company is fundamentally strong and will bounce back once the noise gets to settle in the market.
Same way, technical analysis helps you to test the company in a live environment. It’s emphasis on the short-term price movement. It is good for those who want to go for day trading or swing trading.
Before entering the stock market, one has to be clear on below points.
The stock market is not a gambling:
Most of the people perceive stock market as gambling. They want to mint money quickly without efforts/knowledge. Moreover, they want unrealistic returns from the capital they deploy. For example, people want their money to double in no time, they want 40% to 50% return in short-term to say around a week or maximum within a month. They don’t know that this much time is required before even entering into any stock. That much of research and analysis is require to be done before buying any stock.
Emotions can’t work here:
Stock trading can’t be done with the emotions. Be it profit or loss, emotions have no place in the stock market. Trading cannot be done with emotions. Especially when you are making a loss, but still you are not selling that script just because you think it will bounce back and you will save your money. This is just an emotion nothing else. I have seen many people who are not selling the stock even if they are at 50% loss. You must have heard the term “Greed and Fear” in the stock market. These are nothing but the emotions. People get distracted by these emotions and lost the track which will make them lose money.
Knowledge is money:
Read about the stock market as much as you can. There is no shortcut to success. Reading gives you many insights which will help you to take your decision in trading. Read more and more articles on stocks and company. Try to analyze company’s balance sheet. This is a part of doing fundamental analysis. Try different strategies. try and error and try again. choose the strategy which is profitable for you. Knowledge might not help you to gain high profit but it will certainly help you to restrict your losses. Don’t just follow the strategy of successful people, they might not suit you. There is a famous quote by Mr. Warren Buffett which says
Read 500 pages every day, that is how knowledge works builds up like compound interest.
Invest your surplus money only:
The stock market is volatile, so if you think all your trade will fetch you profit then leave the stock market immediately. You are prone to lose your money. Tell me the single person who has not made a loss in the stock market. So accept that there will be a day when you lose money. But it should not be a frequent phenomenon. Invest in stocks with your residue amount only, the amount which you don’t require at least in the near future. It gives you a peace of mind and better decision ability. Because when you have a deadline for something in mind, you tend to make wrong decisions. you become an impulsive trader and not an investor.
There is no hard and fast rule for studying stock market. You have to develop your own method which suits your requirement. don’t forget to monitor your trade regularly. Here regularly does not necessarily every 10 minutes on a trading day. Do it on the fix periodic basis, it could be weekly, monthly, quarterly etc.