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Trading in the stock market involves some level of risk. Most traders fail to make consistent money while trading in the stock market. The greed and desire to earn quick returns pulls the traders towards the stock market. Investors are in much confusion about whether to buy or sell the stock at a particular time. One can earn consistent returns from the stock market through capital appreciation of share prices and dividend income. There are two categories of the market, namely primary and secondary. Trading in securities happens in the secondary market.
Let us understand what one can do to make money from the market:
Know what type of trader you are- There are two kinds of traders. Some of the traders look at the company’s strengths and then make investment decisions. And others are speculative investors who attempt to profit from the price fluctuations. To earn consistent money in the long run from the stock market, one should understand its fundamentals before investing.
Avoid the herd mentality- Many times, traders make trading decisions based on big operators’ rumours or speculations in the market. These types of decisions are harmful when made without proper reasoning of the facts. Such tricks will not help in the long run. A trader must understand the company’s business and read the financial statements and the cash flow statement.
Never try to time the stock market- One can lose money in no time just because he was trying to time the market. An investor tries to wait till the time it reaches the bottom or peak level, based on the stock’s past trend. Such a mindset may keep you waiting for too long. The stock market is entirely unpredictable. The price of stocks may surpass its past performance level, or it may not reach the average expected levels. There is high uncertainty. Hence one should ensure to diversify its portfolio strategically. Try to have a disciplined investment approach.
Diversify the portfolio– One can opt for mutual funds managed by the trained fund managers. It is a comparatively safer option than directly investing in the stock market. The portfolio is diversified, and so the risk is reduced to a certain extent. Systematic Investment Plans (SIP) allow consistent investment in the mutual funds regularly. One can invest a small amount of money regularly in SIP for the long term to get good returns.
Keep your emotions away- Any trader in the stock market must be patient and avoid panic situations. The fear of selling the share prices in the bearish market and the greed to stay in the bullish market will not allow you to learn the market. It is advisable to control the emotions but rather make rational decisions by studying the market.
Know the factors that impact the share price- One should understand the factors influencing the share prices. The company’s internal factors, such as growth, further acquisition plans, bonus announcement, mergers and acquisitions, etc., impact the shares’ demand, resulting in market prices changes. Other external factors of the economy that impact the companies’ performance, like inflation and GDP, affect its market prices. Hence, investors must keep updated to take opportunities from the market.