My one month experiment with stock market

On 11th Feb 2020, National Stock Exchange(NSE) reported that it added 30 lakh new investors in 2019, of which 48% contribution came from cities beyond the top-50. It also achieved the milestone of 3 crore investors in January 2020. This widening interest in the stock market from non-metro cities came as quite a surprise coz we hardly get to hear anyone discussing it in our circle. Well, the 2020-Lockdown become the reason for pushing me and my friends into exploring the basics of stock market. Here, I am sharing what I learned about stock market and trading in 1 month to help fellow beginners unravel this mystery.

Photo Credit: PTI

What is Stock Market (SM)?

Companies looking to raise huge sum of money from public, register themselves on Stock Exchange, so that public can invest in them by buying their shares (also called stock) and become Shareholders. Shareholders expect a good profit on their investment through increase in value of their shares and/or getting a pie of company’s annual profit. SM consists of Stock Exchange, Brokers, Depositories, Regulators, and retail traders and investors like us.

Those who buy and sell stocks within few days or weeks, by following price trend are called Traders. While Investors study a company’s fundamental and balance-sheet before buying a stock for a long period.

Structure of Stock Market.

Stock Exchange is the platform where traders can buy/sell stocks from each other. (ex: BSE, NSE, MSEI, etc.) Traders can trade in stock exchange only through the members of stock exchange, i.e. Brokers (ex: Zerodha, ICICI Direct, Upstox, HDFC Securities, etc.). SEBI is the Regulator aka Police Force of SM. Index/Indices is an indicator of the overall performance of stock market or a segment of industry (ex: Sensex, Nifty, NiftyBank, NiftyPharma etc.).

How to enter Stock Market?

One needs to open a Demat and Trading a/c with Broker, to trade in stock market. I opened my a/c. within 2 days, all online (Required docs. are PAN, Bank a/c & Aadhaar). A Contract Note/Tax Invoice is issued to us for every trade by broker via email/SMS. (YouTube videos of CA Rachana Phadke Ranade on the basics of stock market for beginners provides a wonderful introduction to SM). (https://youtu.be/Xn7KWR9EOGQ)

Trading- Things To Keep in Mind.

Online trading facility via desktop or mobile app, is now provided by all major brokers. Simple trading involves buying a stock at a lower price and selling it at a higher price. A trade completed within a day is called Intraday Trading. While, trading which extends from few days to weeks or months, is called Short Term Trading. After good experience and thorough knowledge of SM, one can also trade by short-selling a stock or in alternatives like Futures & Options.

Beginners also have the option of Paper Trading but there is an opinion that learning is better & faster if one invests his hard-earned money in the real world stock market (Always start with small amount). Popular sites for tracking the performance of SM are money control, economic times and rediff money.

Few concepts/data that are very useful for Traders are Candlestick Charts, Support & Resistance, Volatility, Volume, Deliverable%, Dividend, Moving Average/EMA, Risk to Reward ratio, Open Interest, Technical Indicators, etc. (There are a lot more important stuffs to learn). A data is useful only if used alongwith other data and not on standalone basis.

Company’s Fundamental/Balance Sheet= Heart. It’s obvious! Companies with strong balance-sheet and sales will provide the best return on investment. Those looking to invest for long term with less risk must follow this path. Fundamental analysis is all about identifying such companies.

Stock Price Trend= Body. Stock prices keep moving up and down randomly, but as you zoom out and look at it over a longer period, you will observe an underlying pattern of upward(bullish), downward(bearish) or sideways trend. Understanding this Trend is very critical. Technical analysis is all about finding the trend.

Stock Price= Tail. Stock prices keep fluctuating based on Demand and Supply. Trading without proper understanding of reasons that drive and sustain stock prices is injurious to health.

Protecting Profits from Losses is Key.

Risk Management is very important to protect our profits from losses, as there is always a probability of loss in trading. Hence, planning and following a set of rules is important. Firstly, one must always find the support and resistance level before buying a stock. Secondly, identify a strong trend before taking a trade. Thirdly, and most importantly, always trade with a Stoploss, i.e. pre-deciding when to quit if your trade goes into loss. It is advisable to keep Stoploss around 2-5%. Risk can be further reduced by trading in stocks of companies who are market leaders in their respective segment, coz just like any other business, there are some dirty tricks in SM too. (Lookout for stocks in Nifty50 index, it consists of top 50 companies registered with NSE)

Always keep a watch on the performance of major global, national and segmental indices as they tend to have a rippling effect on each other. Market Sentiment is another powerful factor that affects stock prices. A piece of negative news can ruin a day with even good stocks.

Finally, beginners make the mistake of trading purely on the recommendation of others, inspite the fact that stock market is just like any other business and risking money purely on other’s advice is like walking blindfoldedly.

YouTube is a very useful tool.

YouTube is a good source for learning basics and much more about SM. I would suggest looking out for YT channels that put up webinar/interviews of successful SM traders. (Would personally suggest YouTube channel named [Elearnmarkets.com](http://elearnmarkets.com/) and Spider Software Official for the same).  Awesome summary of top SM books are available on YT (I’ll recommend the summary of ‘The Intelligent Investor’. For Hindi, https://youtu.be/ZpVQnwo7igA). Off course, cannot underestimate the value of Google Baba.

I would conclude by underlining that Profit and Loss are an integral part of stock market. We need as much patience and discipline, as there is excitement and nervousness.

1 Comment

  • Akshay Mahale

    August 30, 2020 - 6:50 am

    Good read for beginners and people who want to get into our have a blink idea about it.

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