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Investment and Trading Advice for Beginners

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The stock market is an ocean full of sharks and small fish.

Beginners and new traders are the small fish ready to be turned into Sushi .

They jump in without thinking and get devoured by the sharks. To help them navigate the stormy sea, here is some quick advice. 

  1. Are you an investor or trader?

    If you cannot afford to witness your capital erode by 20+%, you are not made for investment. At best you are a short-term or swing trader. Whatever you may be, DO NOT DAY TRADE – if you do, you are likely to lose money faster than you can imagine.

    Your first task is to determine whether you are a medium-long term investor or a short-term trader. I’m guessing you are a mix of both – your mind says that you should hold on for long but your heart wants to be in the think of action, an emotion that compels you to buy and sell at regular intervals.

  2. Capital Allocation and Risk Management

    It’s time to allocate capital. Let’s assume that you have decided to allocate Rs 10 lakhs as investment and trading capital – and you have decided that you will apportion 50%. each to investment and short-term trading. 

    Now, when you invest, you should be ready for a 20% fall in price, at least (that’s your SL). Therefore you cannot afford to invest in more than 5 stocks (20% x 5). Stick to this goal.

    In short-term trading (buy and hold stocks for up to a month or two), you should be ready for a loss of 5%-10%. Therefore, depending on your risk appetite, your short-term portfolio should not include more than 10-20 stocks [(10% x 10 or 5% x 20)].

    Being clear about your investment and trading goals, and fixing SL percentages. Remember that spreading your funds over many stocks can help you de-risk and become a better trader and investor over time.

  3. Portfolio Composition

    So, let’s say that you can bear a 15% loss per stock in your short term portfolio. Now, your portfolio looks like this:

    Medium-Long (say 9 months to 2+ years) Portfolio: 5 stocks
    Short-term Portfolio: 7 stocks (15% SL)

  4. Sources of Information

    Your best source of information is your broker’s updates. Top broking companies like Motilal Oswal, Prabhudas Lilladher, Edelweiss, Ventura, and IIFL broadcast quality information to their clients.

    Second best are paid advisors. 

    Third come some of the top financial anchors. Here are the Twitter handles of anchors that post very high quality and solid information, on TV and online, that can help you score:

    Anuj Singhal
    Nimesh Shah
    Ajaya Sharma
    Nigel D’Souza
    Manisha Gupta (Commodities)

    Fourth in line are trusted influencers on Twitter and Telegram. 

    Avoid independent experts on TV.

  5. Screening for Stocks

    As you’re a newbie, you will not have enough knowledge to combine indicators and discover trending stocks in a live market. You can read books to sharpen your knowledge of indicators and make a mix depending on your trading style – of course, this will take time, and you should be patient.

    Therefore, your best bets are the broker, TV anchors specified above, and trusted influencers.

    Just know this – the screener comes first, charts are secondary.

  6. How to check a source’s recommendation

    Remember you’re a newbie – you have no experience in reading charts. You may know fundamentals and checking up on  recommendation is a good practice. However, prices move at a furious pace in the market and you don’t get the the time to analyze the results during trading hours.

    So, assume that the source has checked everything, but  apply this small check: If the stock has been zipping up since the last 4-5 days, wait for it to cool down – and  if it has gained anything more than 3%-4% since the time of recommendation, then also wait for it to cool down.

    This is all the time I can spare today on this post but will add more resources over time. Just follow your trading plan and stay disciplined, let not profit make you arrogant and let not a loss hurt your pride.

    (To be continued…) 

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