Beginners taking their first step into the stock market can be frightened by all the numbers. This article will help you worry less about investing in stocks by demystifying the process before you take that big leap.
If you're interested in learning about how to start investing in the stock market, look no further. You might have lost money in the stock market or have generated low returns.
When I made my first stock trade, I was only 19 years old. I'm now 22 and learning new lessons with every trade.
Beginner’s Explanation of Stock Market
Stock Market is buying and selling of the stock that is listed in the market. For every buyer, there is a seller.
When you buy 50 shares of a particular stock that means someone is selling 50 shares to you. Similarly, when you sell your shares of a particular stock, someone has to buy them.
If there are more buyers than sellers (demand), then the stock price will go up. If there are many more sellers than buyers (supply), then the stock price will go down.
When you buy a stock, you have bought a small piece of that company. When you sell your shares, you are selling a small piece of the company share you bought.
Let's learn to start investing in the stock market.
Start Investing in the Stock Market in India - Beginners to PRO Guide
1. Open a Demat Account
To invest in stocks, you need a broker. That means you need to open a Demat account.
Demat Account or Dematerialised account offers the facility of holding shares and securities in an electronic form.
In India, Demat accounts are maintained by two depository organizations, National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL).
If you do not have Demat account you can create it from any broker. Here's my recommendation.
You can also checkout the best discount brokers post for more details.
2. Filter The Right Stocks
Now, you have to decide which stocks you want to buy. You must also filter the right stocks for you. If you are new, do not buy penny stocks unless you have big money to start with. If you are a professional investor, you can go ahead with your own research.
There are various ways to select a stock:
Fundamental Analysis is a financial analysis of a company. It compares the current value of a company to its future potential. You can do fundamental analysis on companies that are similar to your company or industry.
Technical Analysis is also called chart reading. It usually predicts possible future price trends in stock by looking at past price movements. Technical Analysis is not perfect, but it will help you pick the right stocks for your portfolio.
Market Trend Analysis
Market Trend Analysis is about identifying the trend of a stock. This analysis is based on short-sellings, insider buying, and other factors. You must always choose a stock that has a uptrend slope.
Stay updated with news and articles related to the stock market. Being updated will help you know about upcoming events in the stock market.
Find out what companies pay a dividend every year. This will be an added income for your portfolio as most companies payout a good % as the dividend they earn.
Read the company's announcements. These are usually made public on the stock exchange website.
Research of the companies
You should research the company that you are looking to add to your portfolio. Do not invest without sufficient information about a company.
Go through the company's Annual Report
Look at the annual report of the company and see what the company does for returns on common shareholders and their investors.
Financial Statement Analysis
The most important thing to do before investing in a stock is to know the stock. Try to find out if the company you want to buy, has potential. Find out if it is being mismanaged or not. A lot of people buy stocks randomly and fail even though they want to because they did not study and analyze properly. So, study well before buying it.
You must be clear on how long you are going to invest. Allocate a timeframe for your investment.
If you want to trade in Intraday then you need to create a strategy for Intraday that involves squaring off our position on the same day.
If you want to trade in Swing-Trading then you need to create a strategy for Swing-Trading that involves holding the stocks for a few days or a few weeks or a few months.
If we want to invest in the long term then you need to create a long-term strategy that involves holding the stocks for more than one year.
4. Capital You Want to Invest
Make a strategy of how much you want to invest every month. If you have the capital, then create a target for the investment.
If you have more than one portfolio, then create a portfolio for each strategy you want to use.
5. Risk Acceptance
You need to understand what your risk is when investing in stocks. You must know the return in terms of both upside and downside returns. You may have two scenarios: The long-term scenario and the Short-term Scenario.
Hopefully, now you know much about the stock market and the best way to get started is to just take one step at a time, starting with acquiring your first stock. Once you have your first stock, read up on ways to identify a company that is low risk and has great potential for growth.
You must have a set plan before you start investing. Your strategy should be based on your risk acceptance and time frame. If you want to invest in the long term, then you need to choose a low-risk company with a high potential for growth.