How to Start Trading Online?

Like with all other things, for online trading is it very important to understand the basics. The learning process should be gradual, systematic and always start from fundamentals for deep and right understanding. There are multiple steps involved before look to start trading online, and it starts with brushing up the financial knowledge.

Knowledge of Basics

As a trader or an investor, you need to have a basic understanding of the financial terms and factors used to evaluate a company. However, it is not something that is acquired in a fortnight rather you would need to hone the skills over a period.

There are several fundamental indicators used to evaluate the company such as Earnings Per Share, P/E Ratio, Book Value, Price/Book Value, Return on Capital Employed and so on. These all metrics help in gathering the basic understanding of the health of the company. In order to invest, a company should have good financial structure and a healthy balance sheet.

Several books are available online that offer a basic insight into investing and factors to consider. Those who are not much into reading can also access video tutorials offered by different website free of cost.

You can check this detailed review on Top Stock Market Education Books, learn from our Share Market Education section and also subscribe to A Digital Blogger Youtube channel for further understanding.

Make sure you get your basics straight before you even thinking of putting in your hard-earned capital and Start Trading Online.

Dummy Portfolio

Before starting with real trading, i.e., putting in real money, one should always do paper or dummy trading. In dummy trading, a trader select stocks that they think meet all the parameters of investing. Then they should track their dummy portfolio for about a week.

If the portfolio and the individual stocks perform similar to the expectations, then it’s a good sign. If not, the user must analyze what went wrong.

Dummy portfolio offers the unique opportunity of learning through mistakes and at the same time not losing the capital.

Researching a Stock

Some of the biggest investors and traders in the world believe that everyone has their own way of investing. While some traders go for the fundamental analysis of the company, others believe in technical analysis, and some prefer both.

Fundamental analysis is based on financial statements such as Balance sheet, income statement and cash flow statement. These financial statements are regularly published by the company and are also easily available online.

Under Technical Analysis traders do price and volume analysis to take a position in a stock. Along with price and volume, other indicators such as moving averages, Bollinger bands, RSI and so on are used for entering the long position.

Technical analysis is not as widely popular as the fundamental analysis, but experienced traders often go for a fine combination of both to arrive at the winning trade.

So, for the beginners to start trading online it is very important to get know-how about these indicators before they Start Trading Online.

Following the Market

There are a number of TV channels and other sources available online that offer an insight into the market, economy and all those factors that influence the market. To start trading online it is important to hit those news channels and websites that offer news of real-time development in the stock market.

Traders should be aware of the stock, sector and economy (both local and global) specific news to decide how much exposure they want in a stock.

At times, it may happen that you have taken a position in a particular stock, and there is an inflow of some negative news. Regular following the market will often give you some hint of imminent news. Such incidents can slash your capital drastically.

Also, being aware of the news and developments gives an upper edge to the trader in the process to select intraday stocks for instance or even dropping the stocks from the portfolio that could turn loss-making.

Setting Target and Stop loss  

A trader should always have a clear idea of the potential that a stock has in the near-term.

But, the stock market does not always work as one expects. For such situations, a trader must always work with stop loss. It keeps the losses in check and saves the capital.

In a bull market, the traders usually keep on revising their profits and stop-loss levels to earn more profit. Even the most experienced trader makes use of stop loss. 

Bull Market Meaning : Bull market is a phase in the Financial Market, where the prices of stock rises and traders tend to sell them to earn the profits. Thus, bull market is a desirable phase for every trader in the stock market.

But before investing in the bullish condition, grab a proper knowledge and understanding to learn is the bull market good or bad?

Risk-Reward Ratio

While setting the target price and stop loss level, a trader should decide on the risk-reward ratio. It primarily suggests the risk that a trader is willing to take for the reward they are expecting. Usually, the risk-reward ratio is 3:1, meaning the reward expected should be 3 times of risk being taken by the trader.

If before taking a position in a specific stock you are not sure about generating a return three times of risk, it would be better to look for another stock. A trader is free to choose their risk-reward ratio based on their risk appetite.

Day Trading

A new trader should always start with day trading, where the trader usually opens and closes the position the same day. The trader can either take a long or short position based on the direction and volatility of the stock. The idea of day trading is that the trader should not carry the position overnight as it is riskier, given the fact that a lot can happen after the market hours that can affect the stock price adversely the next day.

Traders, who are in learning phase or with limited capital, should learn to save the capital first rather than taking an unwanted risk.

Diversification of the Portfolio  

We have long been hearing ‘not to keep all your eggs in one basket’ and the stock market is a pretty good example of it. Be it for long-term or short-term, a trader must always diversify their portfolio. They should focus on different sectors rather than having too much exposure in one or two sectors. Such diversification helps in lowering the overall risk of the portfolio.

Diversification also means that a trader must never put too much of their capital in one trade.

Often, people have limited understanding of diversification, and contrary to their belief, the portfolio is not well diversified. For instance, if a trader has taken a fresh position in automobile and an auto-ancillary stock, then it is not the diversification in the truest sense. Auto-ancillaries are largely dependent on the automobile stocks.

Similarly, FMCG sector would have a direct effect on the packaging sector. Therefore, the diversification should always be based on the broader sectors such as Banking, Auto, FMCG, Capital Goods, Metals and so on.

Be Tech Savvy

There are various finance apps available for iOS and Android that offer extensive data about sectors and stocks. As a trader, you should be aware of various important information such as promoter’s stake, major stakeholders, mutual fund preferences and so on. Also, various short-term trades such as bulk deals also happen every day in the market.

Usually, the finance apps would display all such bulk deals offering you an insight into the outlook of the stock.

Stock specific news, alerts from the brokerage houses, futures & options data among other things are few data points that help trader a great deal in picking the winning deal.

Follow but don’t Mimic

There have been several instances where traders or investors blindly follow the portfolio and trade style of big investors. Over time, they realize that their portfolio is not giving them the kind of returns they expected, while the investor, whom they followed, is making healthy profits.

Well, the real issue is that these big investors are market makers and we cannot follow all their trades, the timing of buying and selling, price at which they bought the share and quantity of shares. These factors together offer them a winning trade.

So, following an investing idea of a particular investor is always better than just mimicking their portfolio.

The above-mentioned points are not the exhaustive list to follow for trading online, rather these are based on the experience of successful traders. Following these have helped many to profit from the stock market. So, even you can do the same.  All the Best!

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