Understanding what exactly you want to do in Stock Markets

POSTED BY manish ON June 22, 2009 COMMENTS (5)

Today we will discuss the important aspect that all the new beginners must understand to know what exactly they want to do in stock markets. In this post we will see what are the different types of things they can do.

In this first post, “Why Stock Markets attract and looks Easy we saw the reasons why Stock Markets attract new people and the issues related to it. In this post let’s explore what are the different options available for you.

stock market

So, you are new to stock markets and you have heard lots of people making 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 which really doesn’t matter in short run.

What you are concerned with is the long term view if you are serious about investing and trading. If you are not serious, I would recommend you to go somewhere else, if you take stock market as hobby, it can be proved expensive hobby and I am telling you this upfront!

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

Understanding what exactly you want to do in Stock MarketsLet’s 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 a Trader or an Investor?

Who is Investor?

Investor is someone who buys the stock for long term. Investing in itself 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 investing in a business, now what type of business would you choose to invest in? It has to be something which will grow over time from its current levels. You are not concerned about the short term movements as the focus should be on the long term view.

If the company’s share prices are providing value over its current price and it has consistent track record along with good future prospects and many more things like these, you will buy it.

Who is Trader?

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

If you are a beginner to the stock market investments then you should watch this video:

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), MID CAP 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 stock to another will lead to confusion and is definitely not recommended.

If you are Trader, you have to choose from Stocks, ETF’s, Futures or Options. Each of them are different from one another and requires specific knowledge to understand them. Its a critical factor to know what you are going to trade into.

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 which you are going to invest or trade.

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 a person who has long term view. 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 advising you to buy such stock, what is the analysis behind it and what are the risks involved. 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.

Part 3 : 8 most Important Rules in Stock Market
Part 4 :
A small Guide for newcomers in Stock Markets

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5 replies on this article “Understanding what exactly you want to do in Stock Markets”

  1. Saoirse says:

    I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

    Patricia

  2. Manish Chauhan says:

    @Carlos

    Real time entries is a cool idea .. good one :0

    Manish

  3. Carlos Júlio says:

    Very nice. I started a venture in my blog with real money. Post realtime every entry. Can see the table at the end of blog. Analysis every day. http://followmarketrend.blogspot.com/

  4. Manish Chauhan says:

    @Manoj (trying2trade)

    Thanks . What you wrote was particular to trading , but yes ,it applies to all areas of life and not just trading and investing .

    Manish

  5. Tryin2Trade says:

    Manish Hi

    Very well written…infact it reminded me of a post I had put in my blog long time back

    http://tryin2trade.blogspot.com/2008/03/of-rumvodka-and-scotch-cheers.html

    Once we get our bias right and are clear what we want from the markets..that I guess is the beginning!!!

    Cheers

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