5 STEPS FOR BECOMING SUCCESSFUL IN STOCK MARKET

Everyone in the stock market wants to remain not only profitable but to get rich soon. However, it's a bitter truth that its only few who really makes a wealth out of it.

I would say that to remain profitable in the stock market consistently is not that easy as it may seems so especially to a new comer in the market. Here I am not talking of a one sided bull market where every Tom, Dick and Harry makes money but when the market starts showing its true colour, it swiftly engulfs all those gains. 

To understand and improve your trading and investing style, the foremost thing is that one is able to identify the reasons for bad trade and for his overall subdued performance. I would suggest you to go through this article 20 reasons why retailers fail to make profit in stock market . 

Going through the above article is a must if you really wants to get benefit out of the present article. Always remember the medicine works effectively only when one knows what actually the problem is. So immerse yourself in the above article first and read it thoroughly. Not just read it, but understand it and after closing your eyes give a deep thought over it and you will notice you are able to co-relate the mistakes you are committing in your trading in stock market. 

Once the aforesaid process is over, you may note down the things and the major mistakes which you are committing in your stock trading. At the cost of repetition I am saying that this is the most crucial step to really transform your profit making journey, so please don't skip it.

Now you can proceed further. In the present article I have tried to summarize some of the immediate steps which one can take to increase probability of profitability in his trading journey.

Yes, you are right, I have used the word probability and not surety. Remember, if you really want to go long in your investing and trading journey make this point very clear in your head that its a game of probability.. yes probability. One who ignores this hardcore reality sooner or later is thrown out of the market. They got sabotaged by the ruthless market. Small time traders are just a drop in the ocean so first and foremost thing is respect the market appreciate that it's all about probability.

5 STEPS TO INCREASE PROFIT PROBABILITY

1. PROTECT YOUR CAPITAL: 

To work in stock market the first thing that is required is your capital. Do you know that most of the traders including even a new comer makes money in the stock market in many of his trades. But in due course of time he loses his gains and ultimately major part of his capital too. Have you asked this question as to why this happens? This happens primarily because the inexperienced trader doesn't realize that he is actually in a game of probability. He instead takes it as a game of certainty. Thereby getting biased with any particular script and putting his chunk of capital in it. Sometimes it works, but many a times it will disappoint.

I hope you must have heard one very famous quote from the legendary investor Warren Buffett is that " Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No.1." 

UNDERSTANDING THE TRAP, PSYCHOLOGY & DANGER

This strategy is more or less like a gamble. History is full of events showing that ones all time favorite stocks are history. Time has shown that even the world's big giant companies getting bankrupt leaving behind its investors in pool of tears and pain. So there is no need of getting too attached and emotional with any particular stock. Remember you are not here in the market to show unnecessary love and affection to any particular script or company. 

The other major danger in remaining heavily invested in a particular stock is that in case there is some serious fundamental issue in the company, then it is the retailer who gets the information at last. Before a stock starts dying, the operators start playing games in the stock and usually it will start becoming too volatile. Many a times you will see abrupt upward movement in prices and then a sudden fall in it. These kind of abrupt swing movement in the stock may persists for several months and even for year or so. The object behind that is to allure the retailers and other traders towards the stock as the movement in it appears tempting and pretends to give quick profit making through swing trading. 

One who enters early in it do make money, but getting out of it is not that easy, as there is always a Fear of Missing Out (FOMO) and the retailer understanding himself to be smart in the game start increasing the position size out of greed. Now he will keep on averaging more and more with every dips with a view to book more and more profit by selling on the rise. 

This phenomenon keeps on going for some time and are designed for giving exit of big players as well as for the promoters. Once they are able to unload their targeted shares in the market, the sharp movement in the stock prices will calm down a bit with the prices going in a gradual downward trajectory. Now in this phase a bit experienced trader will start moving out of the stock with either their stoploss hitting or they sensing something fishy. But still the new retailer will keep on averaging the stock with the hope of it bouncing back and still remembering sweet memories of making some quick profits in past in that stock. Slowly the charm in the stock will fissile  out with the stock making lower lows. 

Now what happens is that the trapped retailers starts getting nervous in the stock and the bit clever ones stop doing averaging in it as a result the buying in the stock starts further evaporating. At this stage also the possibility remains that some big players who were bit late and were unable to exit the stock fully may have been unloading slowly the stocks and passing it to the retailers. At this stage also its possible that to create liquidity in the stock for their exits, the big players may through operators start giving some violent swings in the stock prices. This is done to again trap the retailers by way of giving them hope in the stock. Often positive news are also floated through media channels or through bloggers and channel partners to create interest in the stock for the people at large.  

I hope a retailer who has come here to make some money out of it will never want to go through the aforementioned traumatic situation. So it's always better to avoid such situation as far as possible.

2. DON'T BE TOO AGGRESSIVE IN INVESTMENT OF FUNDS:

When you enter the stock market it's always better to start slow. This is because understanding and appreciating the market needs time and experience. One starts developing the psychology to handle the volatility and tricks with time and there is no shortcut to it. Start investing slowly and with time you will start appreciating the conduct of the scripts chosen by you. 

With time you will understand that many of the stocks chosen by you are bad or non performer while some are good. After due analysis it is always better to exit those bad stocks at the initial stages only. This process often will incur losses, but there is nothing bad in it as it happens with even the ace investors and traders. 

If you are slow and steady in your investing process then for sure the quantum of loss or the mistakes committed by you will be small whereas the experience and the knowledge gathered by you by that time can be enormous. 

Other major problem with getting too aggressive in investment is that when the market is adverse in direction and the volatility is high, the bigger positions start showing big unrealized losses which is often difficult to handle. The trader out of mental stress and fear of even bigger loss many a times square off his positions thereby actually booking huge loses. 

In fact this is one of the major reasons for lower return in stock market. Small-small profits earned gets swallowed away by some big losses of this kind. 

3. YOUR TARGETS SHOULD BE REASONABLE:

When one enters the stock market they are often under imagination that very soon they will become rich as this is a place of sure shot money making. To achieve that they start being too aggressive in the market and as explained in the preceding para suffers loss and too much of mental stress also. This also results in unnecessary multiple trades and often revenge tradings leading to loss. This I have described in my article 20 reasons why retailers fail to make profit in stock market also. 

The professionally managed funds and the mutual funds generally generate 12-15 % of annualize returns. This though appears to be not so attractive for any new comer to stock market, but believe me it's not that bad especially when you compare it with the interest rates on the Fixed Deposits offered by the Banks which at present is around 5-6 % only. If you are into trading for last 2-3 years or so just open your P&L statement and see the net realized profit and most of you for sure will realize that the gains earned are often lower than the gains delivered by the Mutual Funds [though exceptions are always there]. 

This is often when you have invested so much of your time in stock market and had put so much of efforts in it, whereas a passive investment made in mutual fund had generated somewhat more profit in it. Yes, I agree that the investment process in the mutual fund must have been quite a boring one.

Once Warren Buffett had even thrown challenge to many fund houses that they won't be able to match the returns made out by simple and passive Index Funds within a span of next 10 years and you know that he actually won that bet. 

So the more simple the investment process is, the more return it actually delivers in the long run. In my some subsequent blogs I will write in detail on this aspect of index funds. 

So, put your targets reasonable and achievable. I would say anything above 15 % would be a commendable one and you will be actually beating the market. I am sure that with bit of refinement with time the returns will further increase. In just few years you will see your portfolio getting bigger and bigger. 

I hope you are finding the article interesting and useful 👍. So we can move further.

4. REMEMBER ANYTHING CAN HAPPEN IN STOCK MARKET:

Always remember this that almost anything can happen in stock market. An investor who is prepared for the worst is the one who in long run makes exemplary profit from the market. Here I am not saying that one needs to be always under fear but that he should be better prepared for adverse situation. 

Stock market offers immense opportunity to those who are better prepared in time of pessimism and fear. In recent times we have seen market crashing like anything during Covid lockdown. Thereafter, market has also shown a huge rally. But it's only few who would have been able to actually create a wealth out of this severe volatility in the stock market. If you look back, you will realise that the swings in the market during Covid period could have given a lifetime opportunity to multiply wealth. But sadly your trading portfolio would have hardly made a fortune out of it!

In fact, I have seen videos of many ace traders admitting that they could not harness this opportunity and could not make much of a profit. Instead they admitted that just by doing simple SIP (Systematic Investment Plan) they could have made more profit. Therefore, apart from trading activity decided to also do simultaneously investment in stocks and Mutual Funds.

Again coming back to the point, such unpleasant surprises in the market, if properly handled can prove to be wealth multiplying factor.

5. PORTFOLIO DIVERSIFICATION:   

Thought this may appears to be boring one, but believe me, it will solve most of your problems. This you will realise during hard times in market. Always make your portfolio comprising of equity, Gold and liquid funds/bonds. This is a must. Through regular investments keep on building your portfolio comprising of these components. This will build a stronger foundation of your overall investment portfolio. 

During adverse time, when the equity market is nose diving, you won't get nervous. In fact, comparatively your portfolio will perform much better. During sharp market corrections you will be better prepared to do some averaging in good scripts by booking some profits in Gold or from your liquid funds [however in greed never invest your emergency funds in it]. This will generate an alfa in your portfolio returns in long run and further will keep your investment and trading journey much more smoother and comfortable. 

SOME ADDITIONAL BONUS TIPS:

Must make your Trading Journal: One must prepare his/her trading journal thereby describing the trades taken on any particular date. This can be very conveniently done in the Excel sheets or you can even choose to make it in hard copy. Make your comments also side by side as to what was your views regarding any particular trade. You can also record any special events like, quarterly results, Dividends received and so on. With time you will have a treasure of information readily available to you. Most important would be that you would be able to analyze your mistakes in the trade. This will help immensely in refining your trading style. So go for it. 

In addition to aforesaid steps reading some good books on investments and trading and reading good articles can bring lot of knowledge and understanding to the new comers in the stock market. Discipline, having control over your emotions, patience, being more objective in the approach are the traits which can make wonders in the entire wealth creating journey.

Thanks for giving your valuable time in reading this article. I hope you all found it interesting and enriching. Do share this article with your friends and loved ones. 

[Disclaimer: The aforesaid views and experience are personal to the author and should not be taken as any professional advice. Nor it should be taken as any recommendation. The author is not a SEBI registered advisor. Further the author shall not be liable for any errors or omissions in the information and viewers are advised to check the same from concerned official sites or offices. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company or individual. We always respect the dignity and feelings of any religion, ethnic, individual, groups, company etc.]