Make a fortune in the stock market with these simple but golden rules!

The stock market offers exciting profits and thrills to investors, but the risks involved are equally high. Losses are as probable as profits and can even push investors to debt traps and bankruptcy. So, why do people still choose to invest? What differentiates a successful trader from a loss-making one?

Of the many reasons, understanding the golden rules for trading in the stock market and consistently following them is a significant differentiator. In today’s article, we aim to take you a few steps closer to success with these stock market rules.

The 2 Rs: Read and research

Reading and researching are two essential steps before you choose your stocks to invest in. While reading helps you stay updated on the current news and trends in the market, research involves applying various techniques to analyse the performance of stocks. The absence of these two can trigger uninformed decisions, leading to losses. 

Discipline can take you a long way

Earning profits in the stock market through trading requires immense focus and discipline. Stock prices fluctuate so often that it is highly possible to miss out on opportunities if traders do not take positions at the right time. Hence, organising your day as a trader and sticking to the schedule as planned is a simple stock market rule that can work wonders. 

Do you know your broker well?

The first step to trade begins with opening trading and demat accounts with brokerage firms. Since these brokers provide the platform to trade, they also charge various kinds of fees and commissions to traders. 

Sometimes, these charges can eat up a substantial portion of returns, leaving little to no profits for traders. So, comparing multiple brokers with respect to their services, customer support, associated charges, etc., is vital before choosing a broker to tie up with.

Choose rationality over emotions

Emotional investing is the core of behavioural finance that talks about emotions influencing investment decisions. While it is impossible to keep emotions away and purely think from a logical perspective, trying to strike the right balance between the two is essential.

Understanding one’s current financial position and future objectives to formulate appropriate strategies can help investors be more rational in their decisions and avoid biases to a large extent.

Keep the crowd away while making decisions

Herd mentality is another aspect of behavioural finance. We, as social beings, are influenced by the choices and decisions of other beings around us. The same pattern occurs in trading and investing, too.

We sometimes trade or invest in specific stocks because a family member or a friend did so. This can be disastrous if the investment does not align with your goals and objectives. Hence, it is best to assess your requirements and align your investment strategies with them.

Diversification is the key

Holding a diverse portfolio is one of the most fundamental trading rules in the stock market. Concentrating your investments or trades into one stock can lead to heavy losses if the stock does not perform as desired.

Hence, balance out the risk by dividing your investments into assets with different risk-reward ratios. This way, the profit from one investment or trade will help offset the loss against another.

Borrowing loans to trade is a bad idea

Ask yourself: Are you prepared to lose the money you are investing? Well, the answer is usually no when the money is borrowed because you have an obligation to return it. 

Losing money in trades is common. So, entering trades with loaned money will increase your burden since you must repay it irrespective of the outcome.

Being aware of circuits can save you from shocks

Circuits are price limits set by the SEBI to handle extreme price fluctuations of stocks. While the upper circuit determines the maximum price a stock can reach in one trading session, the lower circuit determines the minimum. SEBI suspends stocks temporarily if they hit these circuits.

Tracking these numbers and following the circuit rules in the stock market act as warnings to traders to stay away from such stocks.

Strategise, review and revise

The stock market is filled with multiple strategies for every situation. Learn them and use them to your benefit. Fundamental analysis, technical analysis, using stop-loss limits, etc., are some examples of such strategies and techniques.

It does not end with strategising your trades. Reviewing your results to check if the outcome is as expected is equally essential. If not, it is a sign to revise your strategies.

Know the stock market tax rules in India 

Returns from the stock market are taxable. A sizeable portion of your profits may go to taxes, besides broker-related charges. So, ensure to factor in taxes and other related costs while setting up your profit objectives.

Bottomline

The uncertainties of the stock market are beyond our control. However, following some simple stock market rules and regulations can help navigate the complexities easily. So, ensure you follow them religiously to be a successful trader. 

Another basic yet important rule is to take breaks. We understand that trading in the stock market is stressful. So take breaks, refresh yourself and make the right decisions!

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