Best Tutorial For Share Market – Editorial Note: The Advisor may earn a commission for selling affiliate links on this page, but this does not affect the opinions or ratings of our editors.
Investing in the stock market is a long-term process that can help you manage your finances. Investing in the stock market can seem daunting, especially when you’re just starting out, as it may seem too complicated or risky. A thorough understanding can help you get started.
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Among the two main reasons to invest in the stock market is the opportunity to get a higher return on your investment and to develop financial discipline. For example, compared to basic savings instruments such as fixed deposits, equity investments have yielded a higher rate of return over the past decade. Recurring investments instill a habit of financial discipline by encouraging you to save money and invest it carefully.
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Simply put, the stock market is a market where financial instruments are traded – they can be stocks, bonds, commodities, etc.
The two main stock markets in India are the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). NSE is by far the largest, with more than 90% of transactions in cash. There are also other commodity exchanges like Multi Commodity Exchange (MCX) and Indian Energy Exchange (IEX) for electricity trading and so on.
All activities as well as participants in the stock markets including daily trading, traded instruments, exchanges allowing trading of financial instruments are regulated by the Securities and Exchange Board of India (SEBI).
In addition to listing companies, these exchanges also manage indices. An index is a basket of stocks that represents a theme, be it size or industry. It also allows investors to get an overall assessment of trends in the stock market.
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The most common indices in India are NIFTY and SENSEX. NIFTY is a basket of top 50 stocks by market capitalization listed on NSE. The SENSEX is a peer index of 30 companies listed on the BSE.
Stock market indices are commonly used to compare the performance of fund managers and other stocks. For example, if a mutual fund that compares its performance with the NIFTY has returned 15% this year and the NIFTY has returned 20%, the mutual fund is effectively “underperforming” its benchmark. That means you’d be better off just buying those 50 fancy stocks instead of relying on the expertise of fund managers.
You cannot buy or sell directly in the stock market. To do this, you need to contact brokers who are authorized to trade on the market or stockbrokers that allow you to trade using their platform. The process is simple:
When researching stocks or MFs, you will come across the term ‘market cap’. Market capitalization or market capitalization is the value of 100% of a company. Simply put, if, say, a company has a market cap of INR 10,000 crore, that means that’s how much money it would cost you to buy all the shares in the company.
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There are three types of stock categorization based on market capitalization. This is important to know because many mutual funds and ETFs are classified based on the market capitalization they focus on.
In addition to market capitalization, stocks are classified by industry, the amount of dividend they pay, how fast they grow, among other things.
Anyone can invest in the stock market. It’s a life skill that needs to be honed, and like all good things, it takes a little patience, time and study. Through careful investing, you can make your money work for you and achieve your goals and dreams.
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Kanika Agarwal is the co-founder of Upside AI, a fintech startup focused on using machine learning in the investment sector. Kanika is a Chartered Accountant, CFA charter holder and a graduate of Mumbai University of Commerce. She has more than 11 years of experience in finance and investment.
Aashika is the India Editor of Advisor. Her 15-year career in business and finance journalism has seen her write, write, edit and lead teams covering public, private and personal investments in India and abroad. She has previously worked for CNBC-TV18, Thomson Reuters, The Economic Times and Entrepreneur. Many investors analyze stocks based on their fundamentals, such as earnings, valuation or industry trends, but fundamentals are not always reflected in the market price. Technical analysis seeks to predict price movements by examining historical data, mainly prices and volumes.
It helps traders and investors navigate the gap between intrinsic value and market price using techniques such as statistical analysis and behavioral economics. Technical analysis helps guide traders on what is most likely to happen given past information. Most investors use both technical and fundamental analysis to make decisions.
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Generally, there are two different ways to approach technical analysis: the top-down approach and the bottom-up approach. Often, short-term traders will use a top-down approach, while long-term investors will use a bottom-up approach. In addition to this, there are five basic steps to get started with technical analysis.
A top-down approach is a macroeconomic analysis that looks at the economy as a whole before focusing on individual securities. A trader will first focus on the economy, then on sectors, and then on companies in the case of stocks. Traders who use this approach focus on short-term gains as opposed to long-term valuations. For example, a trader may be interested in a stock that has broken out of its 50-day moving average as a buying opportunity.
A bottom-up approach focuses on individual stocks as opposed to a macroeconomic view. It includes analysis of stocks that are fundamentally interesting for potential entry and exit points. For example, an investor may find an undervalued stock in a downtrend and use technical analysis to identify a specific entry point when the stock may bottom out. They look for value in their decisions and intend to take a long-term view of their deals.
In addition to these considerations, different types of traders may prefer to use different forms of technical analysis. Day traders may use simple trend lines and volume indicators to make decisions, while swing traders or position traders may prefer charts and technical indicators. Traders who develop automated algorithms may have completely different requirements, using a combination of volume indicators and technical indicators to make decisions.
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The first step is to define a strategy or develop a trading system. For example, a novice trader may decide to follow a moving average crossover strategy, where they will track two moving averages (50-day and 200-day) for a specific stock price movement.
For this strategy, when the short-term 50-day moving average exceeds the long-term 200-day moving average, it indicates an upward price trend and creates a buy signal. The opposite is true for a sell signal.
Not all stocks or securities lend themselves to the above strategy, which is ideal for highly liquid and volatile stocks instead of illiquid or stable stocks. Different stocks or contracts may also require different selection parameters – in this case, different moving averages, such as the 15-day and 50-day moving averages.
Get the right trading account that supports your chosen security type (eg common stocks, penny stocks, futures, options, etc.). It should offer the necessary functionality to track and monitor selected technical indicators while keeping costs low to avoid profit absorption. A basic account with moving averages on candlestick charts will work for the above strategy.
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Traders may need different levels of functionality depending on their strategy. For example, day traders will need a margin account that provides access to Level II quotes and market maker visibility. But for our example above, a basic account may be preferable as a cheaper option.
There may be other features required for maximum performance. Some traders may need mobile alerts or access to trades on the go, while others may use automated trading systems to execute trades on their behalf.
Trading can be complicated, which means it’s important to do your homework in addition to the points above. Some other key considerations include:
Many investors use both fundamental and technical analysis when making investment decisions, as technical analysis helps fill knowledge gaps. By developing an understanding of technical analysis, traders and investors can improve their long-term risk-adjusted returns, but it is important to understand and practice these techniques before investing real capital to avoid costly mistakes.
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