The stock market has the potential to bring handsome returns to investors, especially over the long term.
However, making money in the stock market may prove challenging for beginners who have little to no knowledge of how the market works.
While there is no sure-shot formula for success, some practice on the market would help you figure out the right investment strategy.
Keep in mind that stock market investment requires patience, discipline, and a systematic approach to investing. Also, take note of basic share market tips, which may help you generate good returns if followed prudently.
They could help you to make good investment decisions and prevent losses as well.
While some reliable online portals with quality posts on stock market tips for beginners, most of them are not very helpful for someone new to stock trading.
Rather than looking for innovative tricks or hacks to make money in the market, what you should rely on are time-proven tips that help you become a better trader/investor.
1. SET GOALS BEFORE INVESTING
Goal-based investing can help you to work towards achieving your financial goals. Assess your financial needs and set your short-term and long-term goals accordingly.
This will help you to identify the duration of your investment, the target amount, and the investment avenue most suitable for your needs. Say your investment horizon is short.
Then you could attempt to gain from short-term fluctuations in stock prices. On the other hand, should you have a longer timeframe, you could invest in blue-chip stocks, as they are known to bring good returns in the long run.
2. UNDERSTAND SHARE MARKET BASICS
Before you invest your hard-earned money in the stock market, get familiar with the basics. Learn how the stock market functions, what drives the market, what influences stock prices, trading and investing strategies, and more.
You will also need to get acquainted with the many technical terminologies to make informed investments. Investors who jump in without understanding the basics could end up losing their money.
If you want good and consistent returns, learn about the market before starting your share market journey.
3. RESEARCH AND CONDUCT DUE DILIGENCE
Investors sometimes do not research the company they wish to invest in. Some do this because they lack the time or do not want to make an effort.
Others may not know how to do the research. But conducting fundamental research and technical analysis are crucial steps for stock market investors. They can help you to book profits and avoid losses. So, how should you research a company before investing?
Start by reading the company’s financial reports, assessing the competency of the board of directors, and looking into independent research on the company and its sector. This will help you to understand the future growth prospects of the company before investing.
4. SELECT FUNDAMENTALLY STRONG COMPANIES
It would help if you considered investing in companies with strong fundamentals. Such companies not only provide enhanced returns in the long run but also ensure greater liquidity to investors.
Fundamentally strong companies also have the potential to withstand share market volatility and fluctuations. Thus, they are a relatively safe avenue for investment. Mutual fund investors could also look into large-cap mutual funds.
5. DO NOT BUY BASED ON RUMOURS
One thing you should strictly avoid in the stock market is investing based on rumors. Do not simply purchase a stock simply because everyone is investing in it. Even if a friend or relative suggests the stock, don’t follow their advice blindly.
Conduct proper research into the stock before investing. Analyze the performance of the company and its growth prospects. Always remember, good stocks offer good returns. Click here for a quick guide to investing.
6. SELECTING A STOCKBROKER
One of the most important decisions you'd be required to make at the start of your trading journey is picking a stockbroker.
There are several stock brokers in India, and the selection can be difficult for beginners. Focus on factors such as the broker's reputation, trading portal or software, and brokerage to make a decision.
Give special attention to the brokerage as you will be required to pay it irrespective of whether you make profits or losses on a trade.
The brokerage can either be a flat fee or some percentage of the trade value. This is especially important for stock traders as the brokerage of multiple trades adds up very quickly.
7. USE STOP LOSS ON EVERY TRADE
Check the order screen on the trading portal of your stockbroker, and you will see the stop-loss option.
A stop-loss helps you reduce your losses as it lets you select a price at which your position will be automatically squared off. For instance, if you are purchasing 100 shares of SBI at Rs. 350 and expect its price to rise, you can put a stop loss at Rs. 345.
If the stock price falls, your 100 shares will be automatically squared off when it reaches Rs. 345. If you want to know how to invest in the stock market successfully, it is essential to use stop-loss on all of your trades, at least in your initial trading days.
Most brokers now allow you to place a stop loss when you place the buy/sell order.
8. AVOID USING THE MARGIN FACILITY
Lack of capital is one of the most common problems for stock market traders. To help traders with this problem, stockbrokers now offer a margin facility.
For instance, a broker can provide you with a margin of 5x on your capital. This means that if your trading capital is Rs. 1 lakh, you can still buy shares worth Rs. 5 lakhs.
9. UNDERSTAND DIFFERENT TYPES OF ORDERS
To help traders who cannot spend long hours in front of the screen when the market is live, most stockbrokers now offer many different types of trade orders.
Some of the most common types of trades are Normal, Stoploss (SL), Margin Intraday Square up (MIS), Bracket Order (BO), Limit Order, and Cover Order (CO).
10. STAY AWAY FROM THE DERIVATIVES MARKET
Another valuable stock market investing tip for beginners is to avoid trading stock derivatives. The derivatives market is mostly made up of futures and options.
These are contract-based purchases that have a fixed expiry date. Like the margin facility, the derivatives market looks very attractive as it allows you to make bigger purchases with little capital.
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