10 rules for a dumb stock market trader
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K.Karthik Raja
Jul 10, 2008, 5:47:18 AM7/10/08
to Kences1
10 rules for a dumb stock market trader
New to investing In shares?
Let our experienced guide help you kick-start. Reports & analysis to
help you make a wise investment
almost everyone finds intra-day (margin) trading fascinating. Most
young and first-time day-traders feel all they need to do in this
cakewalk is to have a dematerialised account, invest some money at the
start of the day and take home a quick gain of 5-10 per cent each day.
For the uninitiated intra-day trading refers to dabbling in shares on
a daily basis as against investing wherein you buy a share today and
plan to sell it a few years or months down the line.
An intra-day trader has to deposit an amount with her/his broker that
is known as margin money. Based on this margin money your broker will
give you a trading limit that is generally a simple multiple of the
amount you deposit.
For instance, if you deposit Rs 20,000 with your broker then he can
allow you to buy or sell shares worth Rs 80,000 (Rs 20,000 multiplied
by 4) on a particular day. At the end of the day you have to sell
whatever stocks you have bought irrespective of profit or loss. This,
in market parlance, is called as squaring off a trade.
Similarly, if you sell a stock first at a higher price and if you buy
the same number of stock at a lower price on the same day then this is
also termed as squaring off a trade. In both the above examples you
are making a profit.
10 stocks to make young investors crorepatis
But things are not all that rosy as they seem to be. You may buy a
stock at a higher price and the stock price of that stock may fall
after that. Before the market closes at 3.30 pm everyday you will have
to sell that stock to square off your trade. That is the most
important rule of day trading. If you sell it at a price lower than
your purchase price then you make a loss. Similarly, if you sell a
stock at a higher price and purchase that stock again on the same day
for a price higher than what you bought for, you again make a loss.
So day-trading is a double-edged sword which if not handled with care
can hurt young and first-time day traders. Hence, in depth knowledge
and a lot of insight is needed for intra-day trading. In fact for a
novice, intra day trading can turn out to be a dangerous affair.
Does that mean you should completely avoid Intra day trading?
Well the answer is NO. However, one needs to be careful while trading
and keep several things in mind before you jump into the choppy sea of
intra-day (margin) trading. While hundreds of books have been written
on tricks of intra-day trading here are 10 thumb rules that you must
remember before you start trading intra day.
1. Never rush into a trade. Always reach the market at least 15-20
minutes in advance with your trading list in place.
2. Trade with a calm mind, maintain a sound balance between personal
life and life in the share market; don't let the two aspects
interfere.
Market crash: A quick guide for young investors
3. Don't enter a trade if you are unsure of the trend (if prices will
move up or down). Preferably start trading around 10.10 am (markets
begin at 9.55 am every weekday; weekends are a holiday) to know the
clear market direction.
4. Never risk more than 10 per cent of your trading capital in a
single trade.
5. Over trading kills, never do over trading.
6. Remember that no one can predict the exact highs and exact lows. So
never try to catch them.
7. Always maintain strict discipline in your trades. Remember to keep
a strict stop loss and booking profits is a must (So that you know how
much you can afford to lose).
Readerspeak: 'Credit cards are killing me but...'
8. Booking profits is very important and booking loss at the right
time is even more important.
9. Never let a profit turn into a loss; always keep booking profits
and raise your stop loss accordingly.
10. When in doubt the best thing to do is 'Get Out', and don't 'Get
In' when in doubt. Simply put, when in doubt prefer staying at home
and enjoy the company of your loved ones.
New to investing In shares?
Let our experienced guide help you kick-start. Reports & analysis to
help you make a wise investment
almost everyone finds intra-day (margin) trading fascinating. Most
young and first-time day-traders feel all they need to do in this
cakewalk is to have a dematerialised account, invest some money at the
start of the day and take home a quick gain of 5-10 per cent each day.
For the uninitiated intra-day trading refers to dabbling in shares on
a daily basis as against investing wherein you buy a share today and
plan to sell it a few years or months down the line.
An intra-day trader has to deposit an amount with her/his broker that
is known as margin money. Based on this margin money your broker will
give you a trading limit that is generally a simple multiple of the
amount you deposit.
For instance, if you deposit Rs 20,000 with your broker then he can
allow you to buy or sell shares worth Rs 80,000 (Rs 20,000 multiplied
by 4) on a particular day. At the end of the day you have to sell
whatever stocks you have bought irrespective of profit or loss. This,
in market parlance, is called as squaring off a trade.
Similarly, if you sell a stock first at a higher price and if you buy
the same number of stock at a lower price on the same day then this is
also termed as squaring off a trade. In both the above examples you
are making a profit.
10 stocks to make young investors crorepatis
But things are not all that rosy as they seem to be. You may buy a
stock at a higher price and the stock price of that stock may fall
after that. Before the market closes at 3.30 pm everyday you will have
to sell that stock to square off your trade. That is the most
important rule of day trading. If you sell it at a price lower than
your purchase price then you make a loss. Similarly, if you sell a
stock at a higher price and purchase that stock again on the same day
for a price higher than what you bought for, you again make a loss.
So day-trading is a double-edged sword which if not handled with care
can hurt young and first-time day traders. Hence, in depth knowledge
and a lot of insight is needed for intra-day trading. In fact for a
novice, intra day trading can turn out to be a dangerous affair.
Does that mean you should completely avoid Intra day trading?
Well the answer is NO. However, one needs to be careful while trading
and keep several things in mind before you jump into the choppy sea of
intra-day (margin) trading. While hundreds of books have been written
on tricks of intra-day trading here are 10 thumb rules that you must
remember before you start trading intra day.
1. Never rush into a trade. Always reach the market at least 15-20
minutes in advance with your trading list in place.
2. Trade with a calm mind, maintain a sound balance between personal
life and life in the share market; don't let the two aspects
interfere.
Market crash: A quick guide for young investors
3. Don't enter a trade if you are unsure of the trend (if prices will
move up or down). Preferably start trading around 10.10 am (markets
begin at 9.55 am every weekday; weekends are a holiday) to know the
clear market direction.
4. Never risk more than 10 per cent of your trading capital in a
single trade.
5. Over trading kills, never do over trading.
6. Remember that no one can predict the exact highs and exact lows. So
never try to catch them.
7. Always maintain strict discipline in your trades. Remember to keep
a strict stop loss and booking profits is a must (So that you know how
much you can afford to lose).
Readerspeak: 'Credit cards are killing me but...'
8. Booking profits is very important and booking loss at the right
time is even more important.
9. Never let a profit turn into a loss; always keep booking profits
and raise your stop loss accordingly.
10. When in doubt the best thing to do is 'Get Out', and don't 'Get
In' when in doubt. Simply put, when in doubt prefer staying at home
and enjoy the company of your loved ones.
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