Trading, in its essence, is the process of buying and selling financial instruments such as stocks, bonds, currencies, commodities, or derivatives with the aim of profiting from price movements. It’s a dynamic activity that encompasses various markets and strategies, catering to a wide range of investors and traders.
By understanding the fundamentals of trading and employing sound trading strategies, Trading strategies are the systematic approaches or methodologies employed by traders to identify trading opportunities and manage risk effectively. investors can navigate the financial markets with confidence and pursue their financial objectives.
What is Trading, How to learn Trading for Beginners?
What is Trading?
The term ‘trading’ means ‘business,’ where individuals exchange goods or assets from one place to another to earn profits from the market. Nowadays, online stock trading is quite prevalent as people are making lakhs of rupees daily by trading in the stock market. Individuals engaged in trading are referred to as traders. The goal of trading is to buy items at a lower cost and sell them at a higher price to make a profit.
What is Trading in the Share Market?
Share market trading involves the process of buying and selling shares to capitalize on price differentials. Traders purchase shares at lower prices and sell them when the prices rise, aiming to make a profit.
In the stock market, trading can be categorized into two types: short-term trading and long-term trading. Most traders engage in intraday and option trading to quickly earn profits from the stock market.
Types of Trading?
Two types of trading – Short-term trading and Long-term trading.
Short-term trading includes intraday, swing, and option trading,
Long-term trading involves delivery and positional trading. Additionally, scalping trading, algo trading, margin trading, and Muhurat trading are also types of share market trading.
Short-term trading: Short-term trading refers to the practice of buying and selling financial instruments, such as stocks, currencies, or commodities, within a relatively brief period. Traders engaging in short-term trading aim to capitalize on short-term price movements to make quick profits. This approach typically involves holding positions for a few days, hours, or even minutes, as opposed to long-term investment strategies that may involve holding assets for an extended period, such as months or years. Short-term trading strategies include day trading, swing trading, and scalping, where traders seek to exploit short-term market fluctuations. The goal is to take advantage of price volatility and market inefficiencies in the short term to generate returns.
Long-term trading: Under this, there is delivery trading and positional trading. In delivery trading, you purchase shares for delivery, while in positional trading, you hold your position for a short or long term in a particular stock.
Some of you might be thinking that delivery trading is essentially investing, so why am I calling it trading? Well, your point is valid; it is indeed investing. However, in the long term, you will eventually buy and sell shares, and buying and selling shares is termed trading. Therefore, you can also refer to investing as long-term trading.
Algo Trading: In algo trading, there is no need for individuals; instead, automatic trading is carried out through algorithms and software on computers.
Muhurat Trading: As the name suggests, trading conducted during an auspicious moment is referred to as Muhurat Trading. This is often done on the occasion of Diwali, where trading occurs during a specific auspicious time.
Margin Trading: Whenever you trade in a particular stock using a margin provided by your broker, it is known as margin trading or leverage trading. Margin implies money that you have not provided, but your broker is offering you to trade. The facility of margin trading is available in almost every brokerage app nowadays, offering margins ranging from 20% to as high as 80%.
However, remember that there is a higher risk in margin trading because if you incur a loss, the broker may impose substantial charges. Therefore, engage in margin trading only when you have complete confidence in your trade.
Among all these, these three types of trading are the most popular.
- Swing Trading
- Intraday Trading
- Option Trading
Swing Trading
Swing trading refers to trading in stocks over several days to weeks, distinguishing itself from intraday trading, as there’s no obligation to sell the shares on the same day. Swing trading is considered safer than intraday trading, as there is no requirement to sell shares on the same day. In comparison to intraday trading, where profits are sought within minutes or hours, swing trading involves choosing fundamentally stable companies. The goal is to earn profits over a few days while minimizing risk.
In swing trading, selecting fundamentally stable companies is crucial. Unlike intraday trading, where profits are sought within minutes or hours, swing trading aims for gains over a few days.
Some traders even make money in swing trading when stocks experience breakouts or breakeven points. A breakout in a stock’s chart signifies that it has surpassed its previous support or resistance, indicating that the stock has moved significantly higher or lower than its previous price.
Support and resistance play a crucial role in swing trading, and traders use these levels to generate profits. Many stocks consistently trade between their support and resistance levels, providing opportunities for profitable swing trading positions.
Intraday Trading
Intraday trading, also known as day trading, is a trading strategy where financial instruments such as stocks, currencies, or commodities are bought and sold within the same trading day. In this approach, traders do not hold positions overnight instead, they aim to capitalize on short-term price movements and market fluctuations during a single trading session.
The primary objective of intraday trading is to take advantage of price volatility within the day and make quick profits. Traders participating in intraday trading closely monitor market trends, technical indicators, and news developments to make rapid trading decisions. They typically enter and exit multiple trades throughout the day, seeking to profit from small price changes.
Intraday trading requires active monitoring, quick decision-making, and a good understanding of market dynamics. Traders often use technical analysis, charts, and various technical indicators to identify potential entry and exit points for their trades. It is a high-risk, high-reward strategy that demands discipline, risk management, and a well-defined trading plan.
It’s important to note that while intraday trading offers the potential for quick profits, it also comes with inherent risks, including the possibility of substantial losses. Successful intraday trading requires a combination of market knowledge, technical skills, and the ability to control emotions in a fast-paced trading environment.
Option Trading
Options trading is a financial strategy where investors buy or sell contracts granting the right, but not the obligation, to buy (call) or sell (put) an asset at a set price before a specified expiration date. Traders use options for speculation, hedging, or income generation. Calls allow buying at a predetermined price, while puts enable selling. The risk is limited to the premium paid, offering leverage and strategic flexibility. Success depends on predicting asset price movements and volatility.
Options trading is considered highly risky, as it can result in significant profits or losses within minutes due to the rapid fluctuation of premium prices on the chart. To engage in option trading, you need minimal funds, starting as low as 100 rupees. There are two ways to make money: by buying options or by selling them.
Essential Steps for Trading Beginners
Educate Yourself: Before diving into the markets, arm yourself with knowledge. Explore educational resources, online courses, and Book(You can also read my book Price Action Trading Beginner to Advanced, Can buy my book from Flipkart or Amazon.) reputable websites that offer insights into the fundamentals of trading. Understanding market terminology, risk management, and different trading strategies is crucial.
Select Your Trading Style: Trading comes in various styles, each catering to different preferences and risk appetites. Whether you’re inclined towards day trading, swing trading, or long-term investing, choose a style that aligns with your goals and suits your lifestyle.
Choose the Right Broker: Selecting the right brokerage is pivotal. Look for a platform that offers user-friendly interfaces, competitive fees, and a variety of financial instruments. Research different brokers and opt for one that aligns with your trading objectives.
Zerodha and Upstox are considered the best discount broker apps for trading in the stock market. If you want to engage in option trading, you need to first activate the F&O (Future and Option) segment in your demat account. Only after doing so can you start trading in options.
Create a Trading Plan: Success in trading often hinges on meticulous planning. Develop a comprehensive trading plan that outlines your financial goals, risk tolerance, and strategies. A well-thought-out plan serves as a roadmap, guiding your decisions in the volatile world of trading.
Practice with Paper Trading: Most brokers provide demo accounts that allow you to practice trading with virtual money. This hands-on experience is invaluable for honing your skills, testing strategies, and gaining confidence before risking real capital.
Master Technical and Fundamental Analysis
To navigate the markets successfully, familiarize yourself with both technical and fundamental analysis. Technical analysis involves studying price charts, while fundamental analysis delves into economic indicators, financial reports, and news that may impact asset prices.
Risk Management is Key: Effective risk management is non-negotiable in trading. Set realistic stop-loss levels, diversify your portfolio, and never invest more than you can afford to lose. Prudent risk management safeguards your capital and ensures longevity in the trading arena.
Continuous Learning: Markets evolve, and staying informed is paramount. Keep abreast of market news, economic developments, and emerging trends to adapt your trading strategies accordingly.
Rules of Trading
To achieve success in share market trading, follow these rules:
- Never trade with borrowed funds, as it can lead to significant trouble.
- Success in trading requires learning; those who skip the learning process are unlikely to become successful traders.
- Be aware of the brokerage fees and charges in the trading app you use.
- Avoid buying a stock solely based on its rising price, as it may be artificially inflated by operators.
- Never invest all your money at once, especially in option trading.
- Always set and use stop-loss orders while trading.
- Resist greed; decide in advance to exit the market at a predefined profit percentage.
- Maintain discipline by following the rules you’ve set for yourself.
- Determine entry and exit levels before initiating a trade.
Key trading terminology
In the world of trading, there are several key terminologies that traders should be familiar with. Some important ones include:
Bid and Ask: The bid price represents the highest price a buyer is willing to pay for a security, while the ask price is the lowest price a seller is willing to accept. The difference between the bid and ask prices is known as the spread.
Spread: The spread refers to the difference between the bid and ask prices of a security. It represents the transaction cost or the amount a trader needs the market to move in their favour to break even.
Slippage: Slippage occurs when a trade is executed at a different price than the expected price. It can happen due to market volatility, low liquidity, or delays in order execution.
Volume: Volume is the number of shares or contracts traded within a given period. It indicates the level of activity in the market and can provide insights into market liquidity.
Liquidity: Liquidity refers to the ease with which a security can be bought or sold without causing significant price movements. High liquidity means there are ample buyers and sellers, while low liquidity can lead to wider spreads and potentially more slippage.
Long and Short Positions: Taking a long position means buying a security with the expectation that its price will rise, allowing for a profit upon selling. Taking a short position involves selling a security that is not owned, with the expectation that its price will decline, aiming to buy it back at a lower price and profit from the difference.
Order Types: Market orders, limit orders, stop orders, and other order types are used to specify how and when trades should be executed. Market orders are executed immediately at the current market price, while limit orders allow traders to set a specific price at which they are willing to buy or sell. Stop orders are used to trigger a trade once a specified price level is reached.
Leverage and Margin: Leverage allows traders to control larger positions with a smaller amount of capital. Margin refers to the funds that traders must keep in their account to cover potential losses from leveraged trades.
Pips, Points, and Ticks: These terms are used to measure price movements in different markets. Pips are commonly used in forex trading to denote the smallest unit of price change, while points and ticks are used in other markets.
Advantages of trading
Trading allows you to earn more money in less time. You don’t need a professional degree to learn trading. Numerous online trading software platforms offer simulated cash for practicing live market trading. In trading, your loss is limited to the capital invested, while profits are unlimited. There’s no need to go anywhere; you can trade from home using your mobile device and potentially earn thousands of rupees in a day.
Disadvantages of trading
If you don’t set a stop-loss while trading, your capital of thousands of rupees can quickly turn to zero. Trading with a margin increases your risk even more. Some people don’t fully understand brokerage charges, ending up paying fees that offset their profits. The truth about trading is that while some earn money, many more incur losses due to trading without proper knowledge.
conclusion
Trading in the share market is a multifaceted endeavor that offers both opportunities and challenges. As a beginner, investing time in education, selecting the right broker, and developing a robust trading plan will set the foundation for a successful trading journey. Remember, trading is a continuous learning process, so embrace each experience as a chance to refine your skills and navigate the ever-changing landscape of the financial markets.
FAQ’s
How do beginners learn trading?
Newcomers learning trading should start by clarifying their basics. Focus on technical analysis, learn to read chart patterns, and understand various types of candlestick charts. Additionally, for learning trading, you can study moving averages, support and resistance, and price action.
What is the best trading for beginners?
If you are a beginner trader, you can start with swing trading because the risk is relatively low in swing trading. That’s why swing trading is considered the best for newcomers.
How to earn money from trading?
To earn money in the stock market through trading, you need to buy shares at a lower price and sell them at a higher price. If you accurately predict the price movement of any stock in advance, you can make a significant profit through trading.
What is Trading, How to learn Trading for Beginners?
Trading involves buying and selling financial instruments like stocks or currencies. For beginners, start by learning market basics, risk management, and strategies. Utilize educational resources, online courses, and practice with demo accounts. Stay informed about market trends and gradually transition to real trading with a cautious approach.
