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  • Writer's pictureAvik Chowdhury

Share Market Trading: Beginners in Trading

Level of understanding required: Beginner

The share market rises over a very long term. If you check share market index charts over a 5-10-15 year period, most probably you will find that it is higher over a period of time. However, the volatility comes in the near short term, where usually we are trading as a beginner.

As a beginner, I got introduced to Futures and Options in the indexes. The first lure I personally had was options buying. In the index where I started trading, one could buy an options lot for as low as $30. So, I opened an account with a discount broker. Once the account was opened, I transferred a $100 to it and off I went.

Beginners luck: Beginners luck as the term suggests normally shows a very first day. I saw the options chart of the index and decided (without any studies, just by my gut) that the market will rise a bit from here. I pressed the buy button on 1 lot (~$100) and boom - saw the trade in profit, going up - +$1, +$4...+$10 - sell. Within like 15 minutes, I made a 10% profit. Little did I know that this is the 'Bermuda Triangle' of equity trading. I couldn't sleep and couldn't wait for the markets to open the next day.

I started making all kinds of mental calculations: Boy if I have $10,000, I can make like $1,000 a day. By that, make $30,000 a month. Initially, you don't realise that if that were the case, at-least 10% of people on this earth would be multi-billionaires.

I was lucky actually. I had a mentor who told me how misconceived this is. Also, all my lessons were delivered within one month of the first trade. This is how it normally happens after that:

Initially, you start taking trades and they go right. Say $100 become $150.

Then you put in the $150 and trade and soon you start going wrong (directionally, also there is Theta decay which happens on purchased options). Your capital becomes $75, then $50 and then you can't trade anymore, so you add another $100. Before you know it, you are losing 100s of $ if not in 1000s.

To avoid grave mistakes early on and to prevent the spite of giving up in a short time, would recommend the following:

  1. Long Term then Short term: Trading comes later, first learn to buy shares for the long term. When you buy shares for the long term, you go through the process of placing an order, shares getting delivered, seeing the shares go up and down and then selling them. This process happens with time in hand so first set your hands at this. You should not get into intra-day trading without going through this process for at least 2-3 months.

  2. Learn: Of-course it is not possible to learn a lot and get in. My biggest learnings came from taking trades so I am not asking you to learn a lot. Just a bit. Read about Futures, Options, Basic Chart Patterns, Support and Resistance Levels, Stocks and Indexes you will trade and so on. Watch some YouTube videos around people taking live trades, analysing charts.

  3. Mock Trade: I used NeoStox to do my mock trades. Focus on the process of placing a Buy or Short Position. Put in the Stop Loss. Exit trades on time. I did mock trades for 1 month.

  4. Account Opening: Have your trading account ready. The Futures and Options segments, commodities etc are sometime de-activated when the account opens. You may have to push the broker to open that for you. Keep all this ready.

  5. Real Trades without Stress: When you first start taking your trades, it should be an amount which is like 1 month's pocket money. It is proven through various studies that trades go wrong with higher stress levels and when there is a lot to lose. Anyways, you are new - don't go overboard.

  6. Accept it's a skill you are learning: Don't try to be very fast to make it big. Like in my case, don't think a day 1 profit means you are smarter than the rest of the world. You may be smart but the share market needs experience. One tends to miss small details and end up losing.

  7. Sensible Expectations: The best of the best investors ever have made returns like 30% annually. This means a return of 2% a month. As a beginner, be happy if you have started with a break-even. A 10% return on an options buying may be a reality once in a while, but not sustainable.

Keep coming back to this blog. Save it somewhere. I will try and keep adding points. For any queries, you may leave a comment with your email and I will respond.

Happy trading. Give it time.

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