Understanding What exactly you want to do in Stock Markets

Let us discuss the important aspect new beginners must understand what they want to do exactly in stock markets . In this post we will see what are the different types of things they can do . Also lets explore what are the different options available for you .

So, you are new to stock markets and you have heard lots of people make good money . You jump in , open a trading account, read some blogs online which claim to have 80-90% success rate and you jump in to buy some stocks . You make money or loose money , doesn’t matter in short run , What you are concerned is long term is you are serious , if you are not serious , i would recommend go somewhere else, if you take stock market as hobby , its a costly hobby i am telling you .

Below is the way how New comers behave in Stock Markets, click on the pic to enlarge .

Lets see some of the most important things a new comer should ask himself/herself .

Who am I ? A Trader or an Investor ?

This is one of the most important question you have to answer.  Are you are Trader or an Investor ?

Investor is someone who buys the stock for long term . Investing it self is a word which means that you are putting your money in something and you expect it to grow over time . This has to take with fundamentals , company’s potential , long term prospects . Cash flow , profit and losses. See it as owning the firm , where will u put your money in ? Its has to be something which will grow over time from its current levels . You are not concerned about its short term movements .
If the company share prices are providing value over its current price , and it has consistent track record , has good future prospects and many more things like these , you will buy it .

Trader on the other hand is someone who buys and sells the stock for short term . He is not concerned about long term prospects of a company’s much . He is more interested in what stock will do in short term . His decisions are more based on news , technical analysis , gut feeling and things like those .

What will i Trade/Invest In ?
Another important question to ask is What you want to trade or Invest in ?

If you are an investor you can choose from Large Cap companies (NIFTY companies) , MIDCAP companies or very small penny companies . Each of them offer different risk and reward opportunity . But you have to be clear with what you are going to invest in . Because once you are clear with it , you can make some strategy for it and follow it , juggling from one to another will lead to confusion and is not recommended .

If you are Trader , you have to choose from Stocks , ETF’s , Futures or Options . Each of them are different from each other and require specific knowledge about them . Its a critical factor to know what you are going to trade .

Once you know what you are going to be involved with you have a clear road map and then you can move forward to next thing .

What will be my Time Frame ?

Another important thing to consider is the time frame for you .

For Investors It can be very long term (10+ yrs) . Medium term (3+ yrs) , Short Term (1+ yrs) . It depends on your personality , your ability and time to be involved with stock markets . Something which works for a person with short term view may not work with long term view person . So each time frame has its own advantage and disadvantage . you just have to choose one and be clear about it .

For Traders , you again have to choose your time frame and your style of trading . You can be

• Positional Trader whose holds the trades from some weeks to some months
• Swing Trader (few days)
• Day Trader (Buy and Sell on the same day)

You can trade

• Stocks
• ETF’s
• Stock Future’s
• Index Futures
• Stock Options
• Index Options

Understand that each time frame is different and each will yield different result . Two people with different view on market and different time frame can both make money .

Example :

You are bearish on market and you say that Markets are going to fall soon . I say that I am bullish and markets may go up . for next 3-4 days markets move up and I make money based on my judgement and then markets fall heavily and you can make money based on your judgement . So the important thing here is no one is wrong , the only thing is different time frame , So before listening to anyone you also have to understand their time frame . Many analysts on TV channels will give calls like “BUY RELIANCE at 2130 , with target of 2200 , SL 2100″ , Don’t go and buy RELIANCE next day because you have no idea about the time frame of the person , what is the analysis behind it and what are the risk in it . It may work once in a while but its a recipe for disaster for long term .

Conclusion

” A person who wants to do everything eventually cant do anything “

Stock Markets have different kind of things and offer different ways of making money. If you are not clear on how exactly will you do things , Its a tough game then , the first important step is to Identify what you want here , just like in Life we must be clear of what we want to do and then be good at it , learn about it and just consistently improve in it . the same we must do in Stock Markets.