Easy Steps To Earn Money From Trading
Several studies conducted over the past few years suggest that a staggering 95% of Indian traders lose money in the markets! But we believe that with the right approach, making a profit through trading in the stock market can be achievable. In this article, we will suggest some easy steps to help you earn money from trading. These suggestions will not only help you execute profitable trades but also help you manage risk and avoid common mistakes that could lead to significant losses. Here are a few easy steps to earn money from trading:
1. Set Realistic Financial Goals and Determine Your Risk Tolerance
Before you start trading, you must understand how much money you should aim to make from the stock market. Moreover, you must set realistic financial goals and determine your risk tolerance. If you ask beginners, the two most common answers would be as much as possible, or in absolute terms, maybe ₹5000 or ₹10,000 a day with very less capital. If this is your perspective, then you need to reconsider it as soon as possible. Your goal must be to meet industry benchmarks in the trading ecosystem.
The top traders in India make nearly 40-70% returns on their capital every year. So you should aim to generate the industry benchmark of 40-65% returns per year through trading. Risk tolerance refers to the level of financial risk that you are willing and able to withstand. You must only trade with the money that you are willing to lose.
2. Choose a Trading Platform or Broker That Fits Your Needs and Budget
A broker is an intermediary that facilitates transactions in the stock market. If you want to start trading, you should open a trading and Demat account with a broker. While choosing a trading platform or broker, you must select one that fits your needs and budget. Discount brokers such as Zerodha and Fyers are excellent new-age trading platforms. However, it is always better to test out a platform first before you start trading. You also need to look out for brokerage and other charges while selecting a broker.
3. Develop a Trading Plan That Includes Entry & Exit Points, SL Orders, and Profit Targets
Developing a trading plan that includes entry and exit points, stop-loss (SL) orders, and profit targets is crucial for successful trading. It helps you stay disciplined, manage risk, and avoid making impulsive or emotional decisions. The trading plan should be based on your risk appetite and market outlook. It should also be flexible enough to adjust to changing market conditions. By having a solid trading plan in place, you can make more informed trading decisions and improve your chances of achieving your financial goals.
4. Choose a Trading Style That Fits Your Personality and Time Availability
Choosing a trading style that fits your personality and time availability is crucial to your success as a trader. There are several trading styles to choose from such as swing and intraday trading.
Intraday trading involves buying and selling securities (shares, commodities, currency, derivatives) within the same trading day. Day traders usually hold positions for a few minutes to a few hours and aim to make profits from short-term price fluctuations. However, this style requires a lot of time and attention, as you need to monitor the markets closely throughout the day. For this reason, this trading style is not suitable for office-goers and students.
On the other hand, swing trading involves holding positions for several days to a few weeks. Swing traders aim to capture medium-term price movements and tend to have a more relaxed trading schedule than day traders. This style of trading is most suitable for traders with busy schedules.
5. Learn Basic Technical Analysis and Charting to Make Informed Trading Decisions
Technical analysis refers to the study of historical price and volume to forecast future price movements. It does not take into account the financial statements of a company but only the historical price and volume of the shares of the company. Candlestick charts (which visually represent the price & volume of securities) and indicators form a part of technical analysis. They are tools used to analyse charts and make predictions about future trends.
Once you learn basic technical analysis and charting, it is very crucial to practice with the help of historical data. Once you feel comfortable with basic charting, start analysing current market data. Use your charting platform to track price movements, identify trends, and make informed trading decisions based on your analysis.
6. Use Risk Management Strategies
Utilizing risk management strategies is essential for investors who want to protect their capital and reduce the risk of losing money. Two key risk management strategies are stop-loss orders and position sizing.
A stop-loss (SL) order acts as a safety net for traders by automatically triggering a sell order if the price of a security falls to a certain level. It protects traders from significant losses and allows them to manage their risk.
Position sizing refers to the amount of capital allocated to each trading position. It helps you determine the right quantity of shares or derivative contracts to buy or sell to manage your risk effectively. By sizing your positions appropriately, you can control the potential impact of a trade on your overall portfolio and protect yourself from excessive losses.
Together, these tools help traders manage risk and protect their capital. You need to determine your risk tolerance and use these strategies to protect your hard-earned money while still being able to take advantage of market opportunities.
7. Stay up to Date With Market Trends and News
Staying informed about market trends and news is critical for making informed trading decisions. To stay informed, follow financial news outlets such as the Economic Times, Bloomberg, and CNBC, and follow financial experts and analysts on social media platforms. Attend investment conferences and events to network with other investors and learn from industry experts. Conduct your own research on companies and industries, and utilize analytical tools such as stock screeners to make profitable trading decisions.
8. Avoid Overtrading
Trading in the stock market can be an exciting and potentially profitable venture. However, it's crucial to exercise caution and avoid overtrading. Overtrading can lead to excessive transaction costs, eating into your profits. Placing frequent trades may result in emotional decision-making, leading to impulsive and irrational choices. Moreover, constantly monitoring the market and executing trades can be time-consuming and mentally exhausting.
Instead, adopting a patient and disciplined approach, creating and sticking to a specific trading strategy. Avoiding excessive trading can lead to more consistent long-term success in the stock market and earning money from trading.
9. Use a Paper Trading Account to Practice Your Trading Strategies
Utilizing a paper trading account is a great way for traders to practice and refine their trading strategies before investing real money. By using a simulated trading account that allows you to trade securities using virtual money, you can gain a realistic trading experience without risking real money.
However, real trading has an emotional factor as real money is involved. Paper trading accounts simulate real market conditions, including price movements, order types, and market data, which helps you gain confidence in your trading abilities. You can use a paper trading account to test and refine your trading strategies, experiment with different strategies, and find what works best for you.
10. Keep Track of Your Trading Performance and Adjust Your Strategies as Needed
Keeping track of your trading performance and adjusting your strategies as needed is crucial for success in trading. By tracking your performance over time, you can identify patterns in your trading behaviour, measure progress, and make more informed trades. Additionally, tracking your performance allows you to make data-driven decisions and reduce the likelihood of making emotional or impulsive decisions. By identifying which strategies are working and which are not, you can make adjustments to your trading strategies and improve your overall investment performance to earn money from trading.
May your trading journey be filled with success!