Stock market trading; How to be a successful trader

If you are a stock market trader, it is advisable that you must follow some basic principles. By doing these you can achieve success in day and delivery trading.

1. Virtual stock market trading

It is important that before entering and investing money to stock market, spend some time  on virtual stock market trading or paper trading or on stock market trading games. By doing this you will get some trading experience before entering in market. Many brokerages offer virtual stock trading.    

2. Put small amount of money first time

If you are trading for the first time or you are not an experienced trader put small amount of money in to market. Then increase the amount very slowly.

3. Make a trading plan
If you want to become a successful trader you must keep a trading plan. You have to do some home work before trading. This include study of chart patterns.

4. Identify the trend of market
It is very important that you identify the right trend of  the market before trading or investing. Also try to understand strong and weak sectors.

5. Pick right trading or investing stock for you
Before trading a security, try to pick the right stock for you. It depends upon your trade (intraday or short term)

6. Research about the stock before investing

Now a days it is found that investors are going behind brokerage research and calls. Before following brokerage calls it is strictly advised to do your own research.

7. Keep an eye on important trading levels
Before trading it is important to keep an eye on technical levels like pivot points, camarilla levels, fibonacci retracement levels, wave and Gann levels.

8. Book profits or loss in right time
Keep targets and stop loss for every trade. Book partial profit on all targets. If your trade hits stop loss avoid repeated trade in that direction.

9. Never try to buy a security on a new low
If a security make a new low don't try to buy that security. There may be reasons behind the new decline. Try to buy the stock only on a clear indication of reversal (Rising in  price to a specific level).

10. Never try to sell a security on a new high
If a security make a new high don't try to sell that security. There may be reasons behind the new price increase. Try to sell the stock only on a clear indication of reversal(Falling in  price to a specific level).

11. Avoid over trading

If you want to be a successful trader you must avoid over trading. It is the best solution to avoid huge losses.

12. Avoid impulsive trading

Traders must avoid impulsive trading. It will result in the loss of large amount of money. If you believe that you made a bad trade you must exit from the trade or keep a strict stop loss to keep the losses small.

13. Alertness is required for day trading
Day trading requires alertness. So  is advisable to watch movement of market and scrip from terminal or visual media.

14. Keep a positive attitude

A trader must look on getting profits. But if a particular plan not works for you you must reduce or close positions and watch what is happening. If a trade fails on a day, there is no need to become mood out. Participate in other activities to keep your right mood.

 By applying these principles one can easily trade on stock market.

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Market order and Limit order in stock markets

In stock markets, trades occurs when orders are placed. When one trader places buy order and another trader places sell order at the same price trade occurs.
 One can place buy order or sell order in order to enter or exit the trade in stock markets. If some body enters to trade by placing a buy order he can exit from that trade by placing a sell order. If some one enters to a trade by placing a sell order he can exit from that trade by placing a buy order.

Market order

Market order is an order placed with a brokerage to buy or sell shares in the current market place. In market order trader tells the number of shares he or she want to buy or sell. Market order will be executed immediately. If you place a market order to get some shares of a company you will get the shares at a price somewhere between the ask and bid price. In high volume markets, market orders are comparatively safe. Market order guarantee the execution subjected to the liquidity of that scrip, but does not guarantee the price.
 For example a security is trading at 500 RS and you place an order for 100 shares, 100 shares of that security would be bought for you at the price of 500 RS per share.

Limit Order

Limit order is a conditional order, which can be defined as the order placed to buy when the market price of the stock comes to the limit price you set. Limit orders are some times classified as buy limit orders and sell limit orders. Limit order guarantee the price, but does not guarantee the execution.

For example if you place an order for 100 shares of a security at 500 RS, which is trading at 550 RS, your order would be executed when the price come down to 500 RS.

Buy Limit Order

If you think that the price of a security will decrease in short term and then rebound to a higher price you can place an order to buy the security at lower levels.
For example A security is trading at 100 RS. If you think the price of that security will decline to 80 RS, you can place a buy order at RS 80. Only if the price come down to 80 RS, your trade will be executed.

Sell Limit Order

If you own a security, and think the price will go higher in short term. Then you can place a sell order at a higher price. If the price reaches that higher level your limit order will be executed.
For example A security is trading at 100 RS. If you think the price of that security will increase to 120 RS, you can place a sell order at RS 120. Only if the price go higher to 120 RS, your trade will be executed.

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What is Initial Public Offering (IPO); Definition and importance

The term Initial public offering (IPO) refers to the first issue (sale) of the shares of a private company to general public on a securities exchange. It is the stock market launch of the company. IPO's are issued by the companies to expand their capital, equity base, prestige and public image. Along with smaller, younger companies large private companies also issues IPO's. By this process a private company transforms to a public company.
 The company which sell shares not require to repay the capital to public investors. When the shares trade in open market, money passes through public investors.
The company which sells shares, only can make primary offering or Initial public offering.The conductors of IPO's are usually investment banks.
 According to the Securities act of 1933, the process of IPO starts when the company files a registration statement with Securities and Exchange Commission (SEC). Then after proper investigation Securities and Exchange Commission approves the disclosure. After getting approval from Securities and Exchange Commission, price and date of IPO are fixing.
 Investment in an Initial public offering is risky. It is mainly because the prediction of initial day's trade is very difficult.  As it is speculative, only Speculators with risk tolerance are advised to buy IPO's.

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Long position in stock market

In finance, the term 'Long position' or 'Long' is used to describe the ownership of a stock, security, contract,commodity or another financial instrument.In other words the buying of a financial instrument with the expectation of rise in price is called  Long.It is the opposite of the 'short position' or  'short'. If one person or entity is long on a security, it means that the holder owns the security or financial instrument. He will get profit if the price rises. The 'long position' (long) is established by placing a buy order.
 If an investor is long on 100 shares of SBIN, it means he owns 100 shares of SBIN.
 A trader can go long on underlying instrument by buying call options or writing put options.The call seller can be long on an underlying if he has the shares on hand.If the number of contracts bought exceeds the number of contracts sold, he is said to be long.If you want to close a long position, you must sell an equal amount of the same security to reduce your long position to zero.
 If a trader on investor is long on a security, the risk factors are less compared to short on that scrip.But it does not mean that there is no risk. Bull markets are better to go long on a stock. One must keep stop loss to avoid heavy losses while trading.

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Short selling in Stock, Commodity and Forex markets

In finance We can define short selling as the practice of selling securities (stocks, commodities, currencies or other financial instruments) which are not currently owned by the seller. When a trader or investor anticipating a decrease in share price, goes short but it is promised to be delivered. Shot selling is also known as shorting or going short.
 The purchasing of the stock after short selling is called 'Short Covering', 'covering the short' or 'covering the position'. If the price of the scrip declines at the time of short covering, the short seller will get profit as the cost of repurchase is less than the price of selling.If the price of a scrip increases prior to repurchase the short seller will incur a loss. The risk in short selling is that the potential loss of a short sale is unlimited. The short seller requires to keep a minimum margin to cover losses and keep the position. If the trader fails to keep the margin the broker or counter party may liquidate the position.
 On speculative markets traders uses the fluctuations to short a scrip to quickly make big profits.It is like gambling and in some cases it may result in heavy losses and as I mentioned above the loss of a short is theoretically unlimited.So one must keep strict stop loss to restrict the losses.
  In short selling, when you sell a financial instrument the broker will lend it to you from their own account or from some body else account (who is a customer of the firm) or from another brokerage to you.That is, you are borrowing the scrip and selling to some body else.You can hold the short as long as you want by keeping the margin. Some times interest may be charged to margin accounts. If the lender wants the stock back you borrowed from him you may either have to cover the short or borrow from another lender.
 In short, You are not the owner of the financial instruments you have sold. You must have to pay the dividends* or rights declared during the period of short to the  lender. In case of a stock split you must have to return the increased number of shares at lower price. That is if the stock splits in a ratio 2:1 you have to return twice the number of shares at half the price.
 Short selling plays a big role in day trading and it safer than short term short selling as the over nigh risk is not present. Hedge funds and large institutions also uses short selling to make some money. Some wealthy investors also uses short selling to make profit. How ever a short trader must be a dedicated person and he must be aware of the market condition and general conditions to avoid possible losses.
*The actual dividend paid by the company goes to the new buyer. The lender of the financial instrument who holds the shares in margin account also expects dividend (He is unlikely to be aware that his shares are lent out for short selling). There fore the short seller have to pay the dividend amount to compensate.

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