Article

Common myths that surround Trading

23 Mar 2018

While we all wish to earn more to fulfill our dreams and aspirations, we are afraid of relying on certain investments to make this happen. A majority of the Indian population perceives the stock market as a complicated web of transactions which shall remain inaccessible to the common man. However, the trading process today is simple and hassle-free. There are many more assumptions that we make about the stock market. Let’s break a few of them, one by one.

Trading is gambling

This is the first myth that haunts newbie traders. On the contrary, trading in the stock markets is furthest from a zero-sum gamble. It is more like a mathematically calculated, technically analyzed business of shares. Unlike gambling, which is strictly a win-or-lose affair, trading in shares is buying an ownership into a company. You should not bet in the stock markets as you do while gambling. This is, because in the stock market, unlike gambling, the cards are open for you to see and analyze. It only requires you to gain knowledge and do your homework before investing.

There’s a chance to tame the market

For all those who are trading or are planning to trade, there is no secret code to constantly win in the stock market. You might argue that people make huge profits from the share market. However, you also need to know that it is not by sheer luck or with a secret combination. The only key to success in the market is excellent analysis: sound, calculated predictions, and knowledge of the surrounding events. You could follow some trading platforms and websites to remain updated about the market and use the data you find there to do your own analyses.

Higher leverage means higher profits

This correlation is a flawed misconception. Leverage, in any trade, is a two-edged sword: you might earn high profits, or you might lose equally. Hence, emptying your accounts and then borrowing money for high expected returns in derivatives is a risky step. Read your trades, learn their trends, and invest only after you’re satisfied with your analysis. You might not earn the highest returns, but that is better than a huge downfall.

What goes down will eventually rise

Assume a stock rose to Rs50 per share last year, but has, since then, fallen to Rs10. Another stock, in the same time, went from Rs5 to only Rs10. Which is a better trade? You might say that the stakes are equal, but according to experts, “Those who catch a falling knife only get hurt.” There are no guarantees that a stock that has fallen will rise again. This stands true for stocks that have been rising continuously as well. Thinking in this manner without conducting due analysis can turn out to be destructive for amateur traders.

More the indicators, the better

One should always consult more than one stock market indicator before buying/selling a stock. However, a newbie trader can end up confused if he/she looks at multiple indicators and might end up caught in an overly complicated trading strategy. Hence, choose your indicators carefully and learn everything about how they operate. You can then make a simple trading plan to begin investing in the markets.

In conclusion, trading only gets simpler as you analyze the market and acquire knowledge and experience. It is like any business, where you need to look out for trends and trust your calculations. Moreover, it will also require you to prepare an exit strategy because having one is just as important as the caution displayed before entering the markets.

To all those new traders, always have a disciplined trading plan and stick to it. Granted, that the stock market is volatile and unpredictable. Yet, with patience and decent homework, you can get your ball rolling and claim that extra income in the form of profits.

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Beginner's Corner

Common myths that surround Trading

23 Mar 2018

While we all wish to earn more to fulfill our dreams and aspirations, we are afraid of relying on certain investments to make this happen. A majority of the Indian population perceives the stock market as a complicated web of transactions which shall remain inaccessible to the common man. However, the trading process today is simple and hassle-free. There are many more assumptions that we make about the stock market. Let’s break a few of them, one by one.

Trading is gambling

This is the first myth that haunts newbie traders. On the contrary, trading in the stock markets is furthest from a zero-sum gamble. It is more like a mathematically calculated, technically analyzed business of shares. Unlike gambling, which is strictly a win-or-lose affair, trading in shares is buying an ownership into a company. You should not bet in the stock markets as you do while gambling. This is, because in the stock market, unlike gambling, the cards are open for you to see and analyze. It only requires you to gain knowledge and do your homework before investing.

There’s a chance to tame the market

For all those who are trading or are planning to trade, there is no secret code to constantly win in the stock market. You might argue that people make huge profits from the share market. However, you also need to know that it is not by sheer luck or with a secret combination. The only key to success in the market is excellent analysis: sound, calculated predictions, and knowledge of the surrounding events. You could follow some trading platforms and websites to remain updated about the market and use the data you find there to do your own analyses.

Higher leverage means higher profits

This correlation is a flawed misconception. Leverage, in any trade, is a two-edged sword: you might earn high profits, or you might lose equally. Hence, emptying your accounts and then borrowing money for high expected returns in derivatives is a risky step. Read your trades, learn their trends, and invest only after you’re satisfied with your analysis. You might not earn the highest returns, but that is better than a huge downfall.

What goes down will eventually rise

Assume a stock rose to Rs50 per share last year, but has, since then, fallen to Rs10. Another stock, in the same time, went from Rs5 to only Rs10. Which is a better trade? You might say that the stakes are equal, but according to experts, “Those who catch a falling knife only get hurt.” There are no guarantees that a stock that has fallen will rise again. This stands true for stocks that have been rising continuously as well. Thinking in this manner without conducting due analysis can turn out to be destructive for amateur traders.

More the indicators, the better

One should always consult more than one stock market indicator before buying/selling a stock. However, a newbie trader can end up confused if he/she looks at multiple indicators and might end up caught in an overly complicated trading strategy. Hence, choose your indicators carefully and learn everything about how they operate. You can then make a simple trading plan to begin investing in the markets.

In conclusion, trading only gets simpler as you analyze the market and acquire knowledge and experience. It is like any business, where you need to look out for trends and trust your calculations. Moreover, it will also require you to prepare an exit strategy because having one is just as important as the caution displayed before entering the markets.

To all those new traders, always have a disciplined trading plan and stick to it. Granted, that the stock market is volatile and unpredictable. Yet, with patience and decent homework, you can get your ball rolling and claim that extra income in the form of profits.