How to learn Stock Market Trading?

IIFRA Indian Institute of Financial Research & Analysis

Trading is the quickest way to earn money from the share market. Trading means taking stock to earn profit in short term without holding it for long term. It could be short term intraday, scalping, for a few days and even for a few weeks. Often new people come to the stock market with the intention of making quick money. Trading with incomplete information and without guidance can lead to losses instead of profits. Therefore, it is important that if you are new to the share market, then first gather complete information about it and try to learn it. In today’s article, we will try to know what are the methods through which we can learn and understand trading.

How to learn trading?

The stock market is very big and there are many ways to earn money from it. Trading is also one of these methods which can give you good profits even in short term. Trading is like a skill and to learn it we have to invest both money and time in it. As time passes and our experience increases, the chances of improvement in our trading also increases. Some important steps and methods are given below for how a beginner can learn trading in the share market.
Know the basics of trading

To do trading, first of all it is important to understand what are the basic things of trading. Unlike investing where we study the company’s balance sheet and financial ratios etc., in trading we take decisions only with the help of technical analysis. Technical analysis can be called the basis of trading, so first of all we need to learn technical analysis. Under this we have:

  1. Stock charts and chart patterns.
  2. What is candlestick, its types and how it works.
  3. What is sport and resistance and how does it work?
  4. Understanding Technical Indicators.
  5. Understanding Price Action.
  6. It is important to understand risk reward.

The points mentioned above are the main parts of technical analysis and technical analysis works by their combination. Candlestick charts are easily available on the trading platform provided by our broker. Apart from this, there are many websites where stock charts can be easily viewed and analyzed. Some such websites are investing.com and tradingview.

Trading books

The most effective way to learn the basics and advances of trading is to learn from people who have achieved new heights in trading through their practice and experience. That is, those people who have adopted trading as a full time profession and have seen different stages of the stock market. These expert traders have written many books based on their experience which are capable of giving us all types of information from basic to advanced about trading. We can learn a lot by easily purchasing these books from both online and offline markets. Some of the best books are: Trading in the zone, Market Wizards.

Trading course

Nowadays, trading courses are being run by trading experts both online and offline. You can learn about trading by enrolling in these courses. To join these courses, you may have to pay some fees. But here, keep in mind that before enrolling in any kind of course, thoroughly investigate the person running it.

Also see Top Stock Market Courses in Delhi NCR:

learn online trading

If you want to know or learn anything immediately, then the best way to do it is to search about it on Google or YouTube. This is the fastest and free way to learn about anything. Even in the case of trading, you will get a lot of free material on the internet and YouTube. By visiting these platforms you can easily know and understand everything related to trading. Apart from this, many trading platforms like trading view etc. have a community of traders who keep posting educational material and stock charts etc. as per their understanding. You can learn a lot about trading by studying them all.

Trading practice

Whatever you have learned about trading online or have taken the help of any course, it is better to practice trading with virtual money first before investing your real money in it. This way of practicing is called paper trading. Paper trading means trading without real money. You can also do paper trading manually and for this there are many apps available online or there are many websites which provide us the facility of paper trading.

For manual paper trading, keep an eye on the stock’s chart. Whenever you see a trading opportunity, note down the entry price, target price and stop loss as per your strategy at one place. This way, when the trade hits your fixed stop loss or target, note it down. Take several trades in this way and analyze them all at the end. If the accuracy of your trades is more than 60%, it means that you are profitable and your strategy is working. You can do this practice for several weeks or months and gain experience in trading without money.

If you do not want to do manual paper trading, then there are many such apps and websites on the internet which provide you the facility of paper trading for free. Here you do not need to note down anything and you can place your orders just like in real trading. Some such websites are: Neostox and Frontpage.

Things to keep in mind in trading

Money Management: There is a famous saying that money attracts money. That means if you want to earn money then you should already have money. The same is true for trading also. You will be able to make profits from the stock market only when you have enough capital to trade and the ability to protect that capital from loss. Therefore money management is considered very important in trading. In money management, attention is paid to how much money you are allocating for a trade and what is the maximum loss possible on that money. Never invest all your capital in one trade and always manage the risk in whatever money you invest.

Risk Reward Ratio: Risk reward means how much risk you are taking and how much profit you are targeting. Only if your risk reward ratio is right will you be able to survive in trading in the long term. Suppose your risk reward ratio is 1:1 i.e. stoploss is equal to your target. In this case, for you to be profitable, out of every 10 trades, it is necessary for 6 or more trades to be correct, only then you will be able to save your capital from loss and be able to recover the trading charges. But in the stock market everything works on prediction and there is no guarantee that you will be right only so many times. Therefore, keep your risk reward ratio at least 1:3. That means, if you are keeping a stop loss of Rs 5, then go for a target of Rs 15. This will greatly reduce the chances of capital loss even if most of your trades go wrong.

Trading in Limit: Overtrading can be a major reason for loss in trading. While trading, we often take many trades out of emotion, which sometimes turns the profit of our previous trade into loss. Therefore, set some rules for your daily trading, like stop trading if you lose more than a certain amount in a day or take only 2 or 3 trades a day. By doing this you can become a good trader by avoiding overtrading.

Stoploss: Stoploss means the price limit at which you will exit the trade under any circumstances if the stock price reaches. While taking any trade, always set its stoploss. Stoploss is the only tool that can save you from big losses in the stock market. Along with limiting your risks, it also helps in bringing discipline in you and controlling your emotions.

Trading Mindset: If you want to be successful in trading, then the most important thing on which you have to work is your mindset. Make your mindset in such a way that you do not take any wrong decision or enter into any wrong trade due to emotion. It is often seen that to cover the loss in the first trade, the trader takes many more trades even if the market direction is against him or he does not close the loss in any trade on time and does not use averaging. Take support. Many times, traders exit their trades prematurely due to fear of loss, due to which the profit they were supposed to make is not possible. Therefore, it is very important to keep your mindset right and control your emotions while trading.

Trading Strategy: Trading strategy means the plan or rule set according to which you take your trades. This strategy can be anything like price action based, indicator based or momentum based. Every trader adopts the strategy according to his convenience and mindset. If you keep practicing while sticking to your strategy in the long term, you will definitely get success.

Avoid tips: Nowadays, there are many scams related to tips on trading going on on social media and online messaging platforms which give you intraday trading tips in exchange for some money. It is better for both a new and experienced trader to stay away from these things. Stick to your strategy and study the charts accordingly and make your trading plan.

Conclusion

In the end I would like to say that if you take trading as a business and learn and practice it with full dedication, then there is no better way to earn money in the world than this. It not only lets you earn good money in a short time but also you do not have to be tied to one place like a job. Many people enter trading to earn quick money but soon lose their capital. Therefore, it is better to take it as a profession and give it enough time to learn and experience.