Beginners guide to stock market

I have been involved in market for quite some time now. So here is my guide for share traders for risk management.

If you don’t know anything about stock market, then it is better for you to start following markets. Study the market before starting actual trading.

As a starter, if you are not sure about particular stock, then start with indexes. Risk involved in indexes is much less than that of particular stock.

The basic idea of stock market is:

For short term, market is voting machine; while for long term, it is weighing machine.

Short term market is like this:

How much money one can make by trading stock:

a) Your investment volume: Profit is directly proportional to how much you are willing to invest.

b) Momentum in stock: Understand the momentum in stock. Sometimes stocks do not behave according to performance of the company. Do not get carried away. More the momentum in stock, more is the profit in short term.

c) Selection of stock: Choose right stocks. This is the most important factor. You may suffer significant loss if you choose off beam stock.

d) Investment in various sectors: Do not invest in particular sector. Organize your investment such that even in thorny condition you can survive.

You can earn good profit if you stick to right instinct.

What are the steps to start as a successful trader:

a) Believe in what you believe: Do not believe in so called 'news' regarding particular stock. Do not believe in company's numbers without questioning.

b) Avoid intra-day trades: Short term market is very volatile. You think that you will earn more profit in intra-day trades, but it is other way round. Newbie always suffer losses in intra-day trades.

c) Start investing in indexes: As a starter, you can start investing in indexes which involve less risk than that of buying a particular stock.

d) Be quick to book the profit and even quicker to book the loss.

Market makers and high frequency trades:

The effects of high frequency trades depend on whether you are a short term investor or a long term investor.
Thousands of traders trade simultaneously. So there is no way for market makers to track your particular order. However they can see number of orders and what is the total volume.
Also they can easily keep track of your total turnover. Remember crocodiles are sitting over there. They are just waiting for you to make a single wrong move and they will attack on your money like anything.
If your volume is large and if you are a high frequency trader, then they will surely trade against you. So do not invest a large volume in particular stock.

This is not the case if you are a long term investor. Long term market moves according to performance. So there is nothing to worry if you are investing in right stock for long term.