If you want to learn about share market basics, you are on the right page. Here you will learn about Stock market fundamentals.
Imagine you have a favorite company that you really like. Now, pretend that you want to buy a piece of that company so that you can become a part-owner. But since the company is so big, you can’t buy the whole thing by yourself. That’s where the stock market comes in!
The stock market is like a special place where people can buy and sell little pieces of big companies. These little pieces are called “shares” or “stocks.” When you buy a share of a company, it means you own a small part of that company.
People buy shares because they think the company will do well in the future. They believe that the company will grow, and earn more money. If the company does well, the value of your shares can go up, and you can sell them for more money than you bought them for. That’s how you can make a profit!
But it’s important to know that the stock market can also go down. Sometimes, if the company doesn’t do well or if there are problems in the world, the value of your shares can go down too.
There are 4 types of investing/trading strategies you can use to participate in the Share market.
Investing / Positional Trading:
Investing, also known as positional trading, is a trading strategy where you buy stocks with the intention of holding onto them for an extended period. It is a long-term approach to the stock market, where you aim to generate wealth over time by capitalizing on the growth potential of the companies you invest in. When you invest, you become a partial owner of the company.
Investors carefully research and analyze the companies they are interested in. They consider factors like the company’s financial health, business model, products or services, competitive advantage, and the overall state of the economy. By studying these aspects, investors aim to make informed decisions about which companies have the potential to grow and generate profits in the long run.
Unlike short-term trading strategies, investors are not concerned with the day-to-day price fluctuations of stocks. Instead, they focus on the fundamental strength and growth prospects of the companies they invest in. Investors believe that over time, the value of their investments will increase as the companies grow and become more valuable. They may receive income through dividends, which are a share of the company’s profits distributed to shareholders.
Investing requires patience and a long-term perspective. It is not about making quick profits but rather about building wealth gradually over time. Investors may hold onto their investments for months, years, or even decades, depending on their investment goals and strategies. By staying invested for the long term, investors aim to benefit from the power of compounding, where their initial investment can grow exponentially over time.
Investing can be a rewarding journey, but it’s important to remember that it also carries risks. The value of stocks can go up or down, and there is no guarantee of positive returns. However, by carefully selecting and diversifying their investments, investors can manage risks and increase their chances of long-term success.
If you are new to the stock market and just starting to invest, you should start with Investing in positional trades. It’s safer than Intraday and other types of trades.
Swing Trading:
Swing trading is a trading strategy that aims to capture short to medium-term price swings or “swings” in the financial markets. It involves buying and selling stocks over a period of days to weeks, taking advantage of price fluctuations within a larger trend.
Swing traders analyze charts, patterns, and indicators to identify potential entry and exit points. They seek to buy stocks when they believe the price is at a support level, which is like a floor that prevents the price from going down further. They look for signs that the stock is likely to swing up in the near future. Once the price reaches a resistance level, which is like a ceiling that prevents the price from going higher, swing traders may sell their positions and take profits.
The duration of swing trades can vary, but they typically last from a few days to a few weeks. Swing traders don’t aim to capture every small price movement but rather focus on capturing the larger swings within a given trend. This strategy allows traders to potentially profit from both upward and downward price movements, depending on whether they are taking long (buy) or short (sell) positions.
Swing trading requires careful analysis, risk management, and discipline. Traders need to set specific entry and exit points and closely monitor their positions. They may use technical analysis tools, such as moving averages, trendlines, and oscillators, to identify potential swing opportunities.
It’s important to note that swing trading carries risks, and not all trades will be profitable. Traders need to be prepared for potential losses and use proper risk management techniques, such as setting stop-loss orders to limit downside risk. Successful swing trading requires a combination of technical analysis skills, market awareness, and the ability to manage emotions during times of market volatility.
This is the second step, if you have gained some experience in Positional trades, you should start to swing trading.
Intraday Trading:
Intraday trading, also known as day trading, is a trading strategy where traders buy and sell stocks or other financial instruments within the same trading day. Intraday traders aim to take advantage of short-term price movements and volatility in the market.
Traders closely monitor the market throughout the day and make quick trading decisions based on price fluctuations.
Intraday traders buy stocks or other assets with the intention of selling them before the market closes. They seek to capitalize on small price movements that occur within the day. Intraday traders use various tools and techniques to analyze the market and make informed decisions. They may study charts, technical indicators, and market trends to identify patterns and potential entry and exit points. They also consider factors like trading volumes, news, and market sentiment to gauge the short-term direction of prices.
It’s important to note that intraday trading requires active participation and constant monitoring of the market. Traders need to be quick in executing trades, managing risk, and setting profit targets. Since positions are closed by the end of the trading day, intraday traders are not exposed to overnight risks, such as news events or market gaps that can impact prices.
Intraday trading can be exciting and potentially profitable, but it also involves risks. Prices can be volatile, and market conditions can change rapidly. Traders need to have a solid understanding of the market, risk management strategies, and trading discipline to be successful in intraday trading.
Trading intraday needs more skills and expertise than the above 2 types of trading. You should trade intraday only when you have some experience in the share market. You can make quick money in intraday but you can also lose the money faster.
Scalping:
Scalping is a trading strategy in which traders aim to make quick profits from small price changes in a stock, currency, or other financial instruments. It involves buying and selling assets within a short time frame, often just within a few minutes.
Scalpers rely on high liquidity, which means there are a lot of buyers and sellers in the market.
Scalping requires traders to be very fast in executing trades and constantly monitoring the market. They often use advanced trading tools and platforms to help them spot opportunities and make quick decisions. Risk management is crucial for scalpers because even small price movements against their position can result in losses if not managed properly.
It’s important to note that scalping is a highly active and aggressive trading strategy. It requires experience, skill, and discipline. Scalping is not suitable for all traders, as it involves frequent trading and can be stressful. However, some traders find success with this approach, especially in markets with high volatility and liquidity.
Conclusion:
Congratulations! You’ve taken a captivating journey into the fundamentals of the stock market and explored four different trading strategies: Investing/Positional Trading, Swing Trading, Intraday Trading, and Scalping. By understanding these strategies, you now have a solid foundation to navigate the exciting world of the stock market.
Whether you choose to become a long-term investor, a swing trader seeking larger trends, an intraday trader capitalizing on short-term opportunities, or a scalper making quick trades, always remember that continuous learning, discipline, and managing your emotions are crucial elements for sustained success in the stock market.
Now that you’ve gained valuable insights into these trading strategies, it’s time to explore further, refine your skills, and make informed decisions in your own trading journey. So, equip yourself with knowledge, stay updated with market trends, and embrace the exciting challenges and opportunities that the stock market has to offer. Happy trading!
