Investing in stocks is a healthy way to grow wealth. It can be a source of passive income, active income or both. If you have been hesitating so far or are new to this idea, you may ask, “How to actually start and how to earn from Stock Market?”; “How to Invest?”; “How to buy stocks”. Therefore, it for individuals like you, we bring Smart Steps to Earning Profits from Stock Market. Also at the end of this blog, there is a short video about these smart steps to earning profits from stock market.
Consider them thoroughly and follow these steps to begin. To get a bigger picture on the subject, it is recommended that you read the following articles also:
- Why People Don’t Become Rich By Stock Trading
- Mistakes That Do Not Let You Become Rich By Investing In Mutual Funds
Smart Steps to Earning Profits from Stock Market
Step #1 Choose your investing style
Decide that you would like to:
– Do the investment or trading yourself or let a professional do it for you
– Be a value investor or a trader. Again a trader can be Swing Trader or Intraday trader
Recommended reading: Five Steps to Investing in Stock Market
Step #2 Choose between Stocks and Mutual Funds
Look at your resources in terms of time available, relevant knowledge and risk appetite. After giving a careful thought, then decide between:
Investing or Stock Trading in Individual Company’s Equity Shares
OR Mutual Funds
OR A combination of above two
Step #3 Decide on a budget
To begin with invest only your surplus funds as no one can be hundred percent sure in predict the volatility of the market or individual stock. If at a young age, you may keep higher percentage in equity, if near retirement, keep higher percentage of your investment in debt funds.
This is one of the very wise advice or tips which you might not get from a stock broker, investment adviser or share broker who is first interested in earnings commissions.
Step #4 Acquire necessary knowledge and develop stock trading skill
Jumping into the stock market business straight away is like, jumping into the sea without knowing how to swim at all. If you don’t want to take chances with your hard earned money then:
1. Learn the basics of Fundamental Analysis and Technical Analysis. This will help you pick the right Mutual Fund or Share.
2. Begin by screening and filtering the right stocks using Financials – Fundamental Analysis. Prepare your own shortlist of favorite stocks which meet some important criteria like PE (Price Earnings Ratio), Industry PE ration, EPS (Earnings per Share), Sales, Profit and Loss, Debt Equity Ratio, Assets, Liabilities, Reserves and Surplus, Moats, Profits, Dividends And Retained Earnings, Compound Annual Growth Rate (CAGR) etc.
3. Technical Analysis – to time the market, you may use different tools and indicators. The popular among them are Price Trends, Relative Strength Index (RSI), chart patterns. Simple Moving Averages, Exponential Moving Averages (EMA), Support and Resistance, Trend Lines and momentum-based indicators.
4. Do paper trading ( dummy trading) till you develop confidence and perfect a unique stock trading model.
I dare say that this is one of the most crucial steps to not only earning profits from Stock Market but also surviving, which means protecting your capital.
Step #5 Open a Trading Account and a Demat Account
It is important to choose a Brokerage house which gives efficient service yet it is cost effective in terms of commission charged on transactions and annual fee. This will have overall effect on your profitability. Some of them also provide good investor research and analytical tools.
Step #6 Take informed decisions only
Based on your knowledge, trading skills and individual style scan and choose right scripts only. Also select the right time to pick a stock and right time to book profit and exit.
Let there be no room for:
- Herd mentality
- Unverified tips
Step #7 Have feasible expectations from Stock market
Be in stock market for creating wealth. If you have unrealistic expectations of becoming rich overnight, you might burn your fingers very badly.
Step #8 Diversify your portfolio
Diversification of portfolio across asset classes and industries is a helpful strategy to earn optimum returns on investments while minimizing risks. The level of diversification depends on individual investor’s size of investments, risk appetite and knowledge of industrial sectors.
At the same time, don’t enter too many sectors to make your portfolio unmanageable.
Step #9 Don’t Try to Time the Market
Nobody ever has or can predict the exact movements of the stock market. Therefore, you should also not try to this. Catching the peaks of highs and lows are impossible. Just take the decisions based on your technical and fundamental analysis.
Step #10 Monitor your portfolio regularly
It is the nature of stock market to be unpredictable / volatile / be influenced by sentiments. Therefore, monitor your portfolio of investments very closely by keeping an eye on the financials of the company, industry, national and global economy.
Short Video: 10 Steps to Earning Profits from Stock Market
A message from the author
Hope these tips and steps about stock market trading and investing in mutual funds would prove to be very useful to you. Please do keep in mind that all above Smart Steps to Earning Profits from Stock Market are to be taken one after other. Try not to skip any step, if you want maximum benefit from this strategy.
Happy investing and profitable stock trading!!
Other useful articles on this blog you may like to read: