Online stock trading is actually a very basic procedure. However, the steps are different across countries. For India, there are three important things to have before you can start trading, which are a Demat account, a trading account and of course, a bank account.A Demat account operates on the same mechanism as a bank account in india, but instead of placing money into the account, a Demat account contains shares. Once an individual invest in a stock, the stock is automatically placed into the purchasers Demat account. You can easily apply for a Demat account through any financial institutions and the procedure of applying is as simple as filling out a form and providing necessary proof of identity. Once you have opened the account, the next step would be to open a trading account.Trading can be done through various platforms, but it has been found that online trading is the most efficient and convenient way to trade. The online platform allows you to track prices and goes on to provide options to buying or selling prices. Furthermore, it is easier to track the information online, given that you have access to the internet. Lastly, you will need a bank account as a means to perform financial transactions. This bank account will be your platform to transfer money in order to buy shares. Be aware that you are also responsible to pay for brokerage fees once you start trading, regardless online or not.Take note that all three accounts can be easily opened at any bank or financial institution. Additionally, with the advancement of the internet service in India, you will find online trading a breeze and no longer need to trade through the conventional way of trading through the phone.
Are you one to throw caution to the wind, or do you cut your losses short, and let your profits ride? It may surprise you to realize that while many traders think they cut their losses short, and let their profits ride, there is a simple technique that will allow them greatly amplify those profits, while keeping their losses manageable. This technique is known as “pyramiding your profits”.
The art of pyramiding your profits begins with good risk management. You should risk no more then 5% of your portfolio on any given trade, and many experienced traders use numbers as low as 2-3%. This doesn’t mean someone with a $50000 portfolio can only invest in $2500 worth of a companies stock, it means that when they are setting their stop loss, they must be cognizant of how much they can lose on the trade.
So if a company is trading at $20 per share, and our stop loss is at $17.50, we can lose $2.50 per share by buying. If we’re willing to lose no more then $2500, then $2500/$2.50 = 1000 shares. So we should purchase 1000 shares for this trade.
With your standard trade, that would be it. An order to sell at a certain price, and order to buy at a certain price, and a stop loss. When your pyramiding your profits though, there’s an integral extra step. When the stock has gone up in price, and you have some profits, you add MORE to the position. Lets say it goes up to $22.50, and you decide to move your stop loss up to $21.00. You now have 1000 in gains if you get stopped out. To pyramid your profits, you add that 1000 in gains to your risk amount for the trade, for a total of $3500. Since its now at 22.50, and we can risk up to $3500, then we should purchase another 2300 shares. (3500/1.5 = 2334).
If it gets stopped out at 21, then you made gains of $1000 on the shares bought at 20, but you lost $3450 on the shares bought at 22.50, for a total loss of 2450, which is approximately how much you were risking on this trade. If it then continues to go up to $25/share, then you made $5000 on the shares bought at 20, and another $5750 on the shares you bought at 22.50, giving you a total gain of $10750, while only putting 2500 at risk. By adding shares, or “pyramiding your profits”, you substantially increased the potential reward of the trade, while maintaining a safe level of risk, and by cutting your losses short, and letting your profits run, your ability to profitably trade the markets will be greatly enhanced.
Make no mistake; this strategy is applicable to long term investors as well. Assuming you’re invested in an up trending stock, then adding shares to your investment whenever it breaks above the last high will greatly assist in maximizing the profits from the big overall trends that appear in the markets. If you’re investing for longer time periods, its advisable to leave some profit in the case of it hitting the stop loss.
The interesting thing about this strategy is while it’s almost the opposite of some conventional wisdom – you never go broke taking a profit – it does strongly adhere to the idea of cutting losses short and letting profits run. The key is to do more of what’s working, and less of what isn’t, and that’s exactly what this kind of trade accomplishes.
The most successful traders in the market aren’t the ones who are right on 80% of their trades. Many of the most successful aren’t right on 50% of their trades. A few of them aren’t even breaking 30 or 40%. What separates the best from the rest isn’t how often their right, but how much they make when they’re right compared to how much they lose when they’re wrong. By pyramiding your profits, you’ll make massive gains, and small losses, which is a key to becoming a successful trader.
Every investor like a seasoned fisherman must be abreast with sound foundational understanding of the undercurrent behavioral patterns of stocks investment. These winning strategies when fully understood can swell up your bank accounts beyond your wildest imagination.
8. If you are a short term investor …That is an investor that trades for capital appreciation. Monitor closely the closure of registrar, because it will guide you as to when to sell. On the other hand, if you are a long term investor, that’s you are interested in capital appreciation, dividends and bonus payouts over the long term, then closure of registrar guides you to hold on to your shares and possibly buy more incase you don’t have shares in identified companies. Don’t buy a stock after closure of registrar.
9. Make it a habit of attending seminars on stock investment, buy materials such as manuals, audio and video cds, investment books, to enhance your knowledge about investing, investment newspapers such as Success Digest Extra, Stockwatch, Financial Standards, Moneywise, will be very helpful ultimately.
10. Know how to apply the principle of earnings per share. Because it shows you clearly under priced and overpriced stocks in the market. It is arrived at simply by dividing the profit after tax of a company by the outstanding number of shares. For instance if the P.A.T of Efetobor International Plc is $20,000,000 and the outstanding number of shares is 1,000,000. Formula therefore, will be $20,000,000 divide by 1,000,000 units of shares =20. Note EPS is calculated in tens.
11. Apply the principle of diversification, by spreading your investments into different sectors, and also mixing your portfolio with both penny stocks … undervalued.., growth and blue chips stocks. Apply the principle of B.R.E. buying time, resting time and exit time to all your investments. Know when to buy, when to rest and when to sell.
12. Have a personal relationship with your stockbroker, appreciate him, buy gifts for him; this will endear you to his heart, because you need him to facilitate your trade.
13. Know how to apply the principle of Per Earning to Ratio. Because it shows you cheap or under priced stocks. It is arrived at by dividing the earning per share by the current price of a share. For instance the earning per share of EfetoborInternational Plc is 20 and the current price of its share is $60:00. Formula is 20 divide by $60:00 = 3 therefore, the P/E ratio is 3.
14. Apply the principle of quarterly and yearly reports. Your ability to read between the balance sheet and released audited financial reports of companies is very vital to reaping huge profits in the stock market. You will be able to know companies that have performed well on the basis of the details released. For instance profit before tax , profit after tax , earnings per share which determine dividends that shall be paid to share holders.
The performance of a company in these areas and other important areas that space will not permit me to attend to here is a pointer to the stocks you should pitch your tent with.
