Monday, 11 November 2013

Trading for a living


A lot of people wonder how people can make money in trading, even though they seem to have never figured out how the market moves. Even though stock trading seems to be an insane idea to make money, and generally involves trying to put your foot into a peddle you have no idea about, it is fairly simple and straight forward once you start understanding the market and the more difficult part of when to and when not to take calculated risks to invest your money.

Now knowing the fact that it is possible to make money by trading stocks and perhaps even possible to make a regular income by investing in stocks, the next question that arises in everyone's mind is how is this complex possibility made real. The answer to that is the only way to make money in the stock market is by spending time and effort in understanding the market, and then taking calculated risks and following your investments closely.

The first question that naturally pops is how much time is required to make a regular income by investing in stocks. The answer depends on how much income are you expecting, and would you want it to be a backup to your regular income, or actually and eventually your regular income. If the latter is your goal, you would need to spend as much time and effort as you would in a regular day job, maybe slightly less but, you would still need to be very disciplined in the time and effort you spend. Stock trading from home is like an effective weight loss regime. It requires dedication, discipline, and consistent effort put in to studying and analysing to be able to generate regular profits.

For any beginner, the best way to understand stock trading is to foremost open a demo trading account that allows you to trade live. Remember, experience in Trading Live is important, so choose a demo account which allows you to trade live. For suggestions on good Demo Trading accounts, keep checking my posts, they will soon follow. Recommended time to practice Demo trading is about 2 to 3 months, 5 days a week. This will help you build up your individual trading strategy and allow you more time to identify your weaknesses.

The next step is to gain an understanding of the Financial Status of the company in whose stock you are investing. Such Financial Analysis requires understanding of some of the basic concepts of accounting and being able to read balance sheets o companies, and follow and understand Insider Trading  trends. This takes more time to master and will come gradually as you start trading.

Another very important aspect of trading that you would need to understand is Technical Analysis, and during your practice trading identify some of the technical analysis tools that work for you. There are a host of technical analysis tools in the market. My advice is to stick to the very basic tools and indicators available. Choose a few tools that are effective and simple and easy to use. My favourites are slow stochastic, 5 day stochastic, 5 day and 3 day MACD, and the 5 minute slow stochastic and MACD, and the 5 minute volume indicators. Another important indicator is the candlestick. Another of my favourites are the pivot point calculators which give a fair enough idea of what price the stock is more likely to reach based on the trend.

In addition to the above earnings report, news, and pre market trade patterns are important factors for stock trading as well. The best way to make profitable trades is to trade stocks before and after earnings report to cash in on the market sentiment for the stock. Keep watch for my brief on earning reports and stock rallies in my next post.

On a regular trading day start by looking at most active stocks during pre trade, and list down the stocks that you want to follow for the day based on market volume and most active trades with high volume, and then further shortlist based on any news related to the stock that has been in highlight recently. Also, look out for any insider trades that may have happened in the recent past.