Ever since I was a 10 year old kid, the red and green numbers moving from right to left on the television screen always fascinated me. Honestly, I did not know what they meant only till I got into college at the age of 18 years. I saw people around me, my friends, uncles, neighbors talking about profits/losses they made in the stock market. I started trading with virtual money during my college days and finally jumped into real trading after six odd months. Here are some of the problems I faced:
What to buy/sell?
I was not sure “what” or “when” to buy or sell. With time, I understood that merely following the market cues was sometimes sufficient for making decent profits. I used to go through all market related news that was released after market hours, study its impact on particular stocks or sectors and then trade long or short the next day accordingly. I made money in stock markets without any knowledge of technical charts but by following the mantra of Market Cues.
Trading based on false news is also another way of making supernormal profits. Many a times we see stocks reacting strongly upside or downside only in anticipation of some news that is merely a rumor. In such cases the companies step forward to inform the stock exchanges about the validity of such news. Invalidation of such news flows are good buying or selling opportunities for swing traders for making super normal profits.
While trading virtually I did not concentrate much on calculating brokerage and taxes. I was awestruck when I first saw brokerage and taxes being deducted from the gross profit I made. From next time I made sure to add brokerage and taxes to my purchase price before I started calculating my profits from the latest market price.
Consider the following:
I purchase stock X at 100 and currently it is trading at 104.50. Thus, I am making a gross profit of 4.5 percent. However, I prefer to add brokerage and taxes to my purchase price, giving me a net purchase value of 101.30. Hence while selling the stock I intend to compare the selling price to 101.30 instead of my actual purchase price of 100.
By keeping merely these two important things in mind one can make money trading in the equity market. Although one must always remember: “STOP LOSS is a MUST.”