How to Pick the Right Stocks and Trade Online in India
Stock selection is a difficult process, and different investors have different approaches. However, it is prudent to take standard precautions to reduce investment risk. This quick tutorial to online stock trading will walk you through the basics of identifying high-performing equities.
Step 1: Determine the investment’s time frame and overall strategy.
This is a crucial stage because it will determine the types of equities you purchase.
If you want to be a long-term investor, you’ll want to look for stocks that have long-term competitive advantages and consistent growth. Looking at each stock’s historical performance over the last decades and performing a simple business S.W.O.T. (Strength-weakness-opportunity-threat) analysis on the firm are the keys to locating these stocks.
Stock Picking Strategies for Short-Term Investors
If you opt to invest for the short term, you should follow one of the following strategies:
a. Momentum Trading: This approach of online trading involves looking for equities that have recently increased in both price and volume. This trading method is supported by the majority of technical evaluations. My recommendation for this technique is to look for stocks that have shown consistent and gradual price increases. When equities are not volatile, the theory is that you can simply ride the up-trend until it breaks.
b. Contrarian Strategy: This strategy seeks out stock market overreactions. According to studies, the stock market is not always efficient, which means that prices do not always adequately reflect stock values. People worry when a corporation releases terrible news, and the stock’s price often falls below its fair value. To determine whether a stock has over-reacted to a piece of news, consider the probability of a recovery from the negative impact. For example, you may be convinced that the market overreacted if the stock drops 20% without showing a decrease graph for a few weeks after the firm allegedly loses a court issue that has little long-term impact on the company’s brand and product. Finding a list of equities with recent price decreases and analysing the potential for a reversal is general guidance on this technique (through candlestick analysis). Is the reduction due to a market reaction or a breakdown in the company’s process? If the stocks show candlestick reversal patterns, one should review recent news to understand the causes of recent price decreases and whether over-sold chances exist.
Step 2: Conduct thorough research
Conduct research that will provide you with a list of stocks that are appropriate for your investment time frame and strategy.
There are various stock screeners available on the internet that can assist you in finding Indian stocks that meet your requirements.
Step 3: Diversify to Protect Against Loss
Once you’ve compiled a list of stocks to purchase, you’ll need to diversify them in such a way that the reward/risk ratio is maximized. Expert stock brokers use the Markowitz model to analyse the Indian stock market. Conducting a Markowitz analysis for your portfolio is one approach to do this. The results of the analysis will show you how much money you should put into each investment. This step is critical because diversification is one of the investment world’s free lunches.
Step 4: Investigate
With the help of a stock brokerage firm, you can broaden your trading horizons. Create a depository account with them. The fees for demat accounts vary depending on the services provided by the company. Conduct thorough research into the most cost-effective demat account rates and choose a stockbroking firm that focuses on customer care.
These four steps should help you get started on your quest to routinely profit from the Indian stock market. They will broaden your understanding of financial markets and instil confidence in you, allowing you to make better trading selections.
Short tips on Trading Smartly in India:
The checklist below helps in identifying the right company to invest.
- Earnings and overall growth trends.
- Strength of the company in comparison to its competitors.
- Debt-to-equity ratio meets industry standards.
- The price-earnings ratio can be used to determine a company’s value.
- The company’s dividend policy.
- Executive leadership effectiveness and projection plan.
If you’re still considering taking the plunge into investing, get things rolling by opening a demat account with Nuuu