How Beginners can Safely Invest and Trade in Stock Market

Stressing the word safe with stock market is mandatory. Don’t know whether it’s a joke or a terrible thing but forced to use that along.

Beginners combined with the involvement of money is a strong combination for caution. When it comes to beginner’s, safety should be stressed more both theoretically and practically. Theoretical safety attracts the beginner to the world of Stock Market whereas practical safety will only hold a beginner to stay in stock market.

Read my previous article here to know the need for stock market investment and it's safety.

As a beginner, you will be pretty excited and sometimes this excitement can cause you more trouble rather than your inexperience. So, it’s all about controlling your emotions and being cautious.

The first thing to be concreted in your mind is that it’s not easy and you won’t get rich overnight. It takes time to be successful in stock market. Patience is the key along with good involvement and a mind to study.

The market won’t come to your terms, you have to go in terms of the market. This is very important as market can go in upward direction or downward direction or sometimes it can consolidate in a small range without any progress. Try to understand the market trend in real-time and take the trade according to the trend. Trend is your friend.

Let’s check some common things that a beginner should always keep in mind in order to be cautious in stock market to stay safe.

Risk Reducing Measures

Nobody likes to washout their hard-earned money through early mistakes because of inexperience and lack of knowledge.

Trading safe and limiting the losses in the early stage is really important as it will increase your interest to the stock market which will, in turn, urge you to explore more about stock markets and to gain more knowledge on proper trading strategies.

Instead of setting the bars high by picturing yourself in a super profitable position, limiting the losses is the right approach for a beginner. Even experienced traders enter into wrong trades and hence it’s very important to accept that loss is a part and parcel of every trader. This is where limiting losses have more importance.

One thing to notice is limiting losses doesn’t mean that you will always be losing money. If you can reduce loss in a trade, then you can recover or balance it with another profitable trade. Besides, losing less amount of money is far better than flushing your entire capital.

These are some practices we could try to limit losses.

Study the basics properly

There is no shortcut in the stock market. You should only enter into a stock market after properly studying its basics and working.

To know what the stock market is read my previous article. (Read here)

It is mandatory that you cover all your basics when you are getting into something new, especially when your money is involved in it. So, rule no 1- Learn the basics of the stock market.

Closely follow the market

When you decide to enter the Stock Market, it is necessary to closely watch market trends including Global Markets.

Read articles about the stock market to stay updated and also watch news related to it. Yes, I know, you would have always skipped the Market News back in the days but now it’s a matter of your money. It’s guaranteed to help you pick some good stocks to invest in and make profits.

Once you have grasped all the basics, it’s time for you to do some Paper Trades. Simply just watch the market during working hours and take imaginary trades on your stock picks. This will help you understand whether your analysis was right on the money or whether you need to put some more effort to improve your analysis. Take as many days as you want before entering the market with your money.

Take baby steps

Just like a toddler making baby steps, a beginner should also approach the market with a similar mindset. Instead of going for a dash, go one step at a time.

Do not go all out on a stock for getting more profits. If the stock moves in the opposite direction you will lose your capital. So, add smaller quantities at first and aim for lesser profits.

This will make you progress and understand your mistakes without much loss if something goes wrong.

I can give you my own experience on this. When I started my trading, the Reliance and Future group deal was announced and I didn’t know much about the deal. So, I decided to buy Future Enterprises Limited shares with much expectation but unfortunately, that was my worst entry to date.

To read the key points of the 44th AGM of Reliance, click here

My entry was at the scrip’s highest price and I incurred lose in that trade but I had only invested a small amount since I was following this baby step method and the loss was acceptable to me and I don’t regret the trade as I did learn an important lesson about the stock market.

Control your Emotions

Controlling your emotions is very important in Stock Market. Ego, excitement, and anger should be kept away.

A loss in a trade can make you angry and hurt your ego. Don’t enter into another trade because of this emotional baggage to get more profits. This state of mind can force you to make further wrong decisions and enter into wrong trades.

Also, a win can make you excited and gives you a kick to enter into more trades to get more wins and profit. But this can go against you and a big loss in some trade can erase the gains of many profitable trades.

Do not Overtrade

Setting a goal is important. Usually, in the stock market, a goal is set in terms of percentage. It can be daily, weekly, monthly, or annually according to you. But as a beginner setting such a high standard is difficult.

You can fix an upper limit as a beginner. A stock market offers you numerous opportunities and you cannot get everything. Grab your opportunities and satisfy on that if it gives enough for you.

Running behind everything may not always end up good. When you attain the highest set limit, it is good to stop trading after. The trades after that can be profitable too, but it’s better to avoid risks when you are a beginner as these trades can be losses too.

Keep strict Target and Stoploss

As a beginner you will be happier and excited to see the profit going higher and higher but when it goes down, it will be a worry for you as well. So, keeping this under check is important.

The stock market is sometimes really unpredictable and highly volatile. We might predict the market to go up and suddenly it can come down even more. This can make you incur many losses especially when you are doing intraday.

We can limit our losses by keeping a stop-loss and maintaining it strictly. Try to maintain a stop-loss for your swing trades as a sudden fall in a stock may block your capital for the long term.

Keeping a target helps you to pocket the profit. A profit is unrealized will be only on a screen until you book. An unrealized profit is a risk and anything can happen if some bad news suddenly hits the market. Maintaining a strict target helps you realize the profit and reduce your risk.

If you are so confident because of any late developments that the stock will exceed your target, try to partially book a profit at your target and keep holding the stock with a strict trailing stop-loss at the partially booked price.

Never take blind calls without your analysis

There are many YouTubers and groups where you get calls for free or for a small amount of subscription charge. Most of these are good and genuine backed by proper analysis but none of them can be trusted blindly. In fact, nobody can give you calls with 100% success rates. Even SEBI Registered analysts will strictly give you the disclaimer to do an analysis on your own before entering according to their calls.

As a beginner, this is what you should follow. Get these calls and go to the charts, and do a fundamental as well as technical analysis on your own to make sure that it’s a genuine call rather than a fake call due to the market volatility.

In fact, this will help you improve your analysis methodologies, explore new things in the market and make your progress towards a successful trader. A beginner taking a blind call will always stay as a beginner and will never gain anything from this experience.

Keep away from Derivatives initially

Derivative trading is something far advanced for a beginner and it requires a lot of expertise. You must be highly efficient and technically brilliant to do futures and options. The losses in derivative trading are big enough to wipe out your entire capital if not done right. I am not saying it’s impossible, but as a beginner, it's better to gain an ample amount of exposure to the Equity Market before entering into derivatives.

So, it is highly recommended not to trade in derivatives if you are a beginner. What you can do is, start trading in the equity market to get familiarized with the terminologies, to increase your efficiency and to improve your technical knowledge and chart analysis.

Then slowly study thoroughly about derivative trading and start following the derivative market. Do some trade on paper without involving your money and once you are confident enough to enter the Derivative Market, you can apply everything that we have mentioned in this article in your derivative trades as well.

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Disclaimer: I am not a SEBI registered analyst or a highly successful investor. Decisions you make are solely your responsibility.