By Ravi Garg
The Stock Market is always a keen area of interest among the traders especially youth. But the harsh point is everyone starts doing it without understanding the basic concept and this becomes the reason why they end up losing their hard earned money. The Stock Market is a zero sum game, where profit for one is a loss to another.
First of all, before diving into it, one has to understand the two types of activities performed on Dalal Street. The first is INVESTING and the second is TRADING. If a person puts his or her money in for longer period of time, then s/he is investing in the company and, hence, he is called an Investor. An Investor of the company has the feeling of ownership in the company and, hence, the future of the company affects their financial position in the market. Secondly, if a person is putting money in for a shorter period of time, then it is just trading that stock as per the best available opportunity. A trader does not have the feeling of ownership and hence the future of the company does not affect the trader.
One rule that rules the stock market is BUY LOW AND SELL HIGH. Just imagine a shopkeeper who buys onions for Rs 20 per kg and sells them for Rs 21 per kg, which analysis he has done.
First, he knows exactly that there is a demand for onions at Rs 21 kg. That is why he is pretty sure about the selling price set by him. Further, he knows that the best price at which he can get the onion in the market is Rs 20 per kg and that is why he bought the onion.
Now just imagine if you are on the floor of Dalal Street, are you doing any analysis before buying the share? The buying price must be the price where demand for the product rises. Again are you doing any analysis before selling the share? Selling price should be the price at which demand for the stock is at the least and sellers want to book their profit and exit.
Only a few people are doing this analysis in the stock market and that is the reason only a few people are making money in it. Everyone else is just betting, gambling and becoming part of the rat race.
What should you do?
Before starting, first you have to understand whether you an investor or a trader.
If you are an investor then look for the company’s financials, read business newspapers, look for company’s management and their future goals. Once done, then INVEST in the company and sit back. Do not check the price daily, just believe in your research and if it is correct, you will earn. This type of analysis is called Fundamental Analysis.
If you are a trader, then you should understand the concept of demand and supply. A price at which the demand for the product is high is the best price to buy it at. Likewise, the price at which people are willing to sell the product, or say, when the supply of a product is more, is the best price to sell the product. Now you are curious to know, where you can get these prices. For this, you need to understand the concept of Technical Analysis. Technical Analysis comes with various tools like charting, indicators, moving averages and various other tools to understand how price reacts in the market. It helps you to understand the price at which it is taking support (i.e. price at which demand>supply), and price where it is hitting the resistance (i.e. Price where supply >demand). Understand the price and make your move.
I hope you understood how the market reacts in the short term as well as in the longer term. Make your move wisely.
Happy Investing, Happy Trading!
(Ravi Garg is an associate Chartered Accountant, who has completed his CA at just the age of 21 years).
