Where to begin

Learn Trading the beginners way

thetrader Trading, Where to begin

I am often asked, how did I pick up trading and how did I learn trading? At the end of conversation, I would forward some link. The links often depend on the questions asked. I will update this blog with all the questions possibly asked and answers to them.

Q. How do I select a broker to open my account.

The answer to this question varies depending on what the person is looking for. For beginners, Zerodha is great. I would also recommend Fyers since it has some cool features for advanced traders.

Q. What documents are required?

Please refer to this post to know more about this.

Q. How to learn about candlestick patterns?

I started trading in 2016 and back then we had very few reliable sources to learn. I had put my time into multiple youtube videos but I found zerodha varsity blog to be complete and concise. Please check this out.

Q. Where from one can learn about Options, Premium, Put Call etc?

You can learn about basic terminologies from on of the youtube video here. His language is simple and easy to understand. You can also read this article here.

Q. What are tradable patterns and how do I learn about them?

Yet again, I would point to Zerodha varsity for basic candlestick patterns.

Q. How to identify support and Resistance?

a. This article is simple an easy to understand.

b. Other support and resistances can be indicated by some indicators such as PIVOT and CPR. TRENDLINES too can address the concern.

Q. How to draw trendlines?

Please follow this video from a youtuber, Rayner Teo. His explanation is concise.

Q. How to place a stoploss?

Please follow my post for this. The article can be found here.

How to pick long term stocks?

thetrader Investing, Where to begin

How to pick long term stocks? This question puzzles every investor during their initial days in the stock market. No set of filters can work always in the stock market. The market is very dynamic but following few basics goes a long way. Let us look at some of them.

  • The bussiness should be profitable, quarter after quarter, year after year. Positive EPS is desirable.

Beginners should stick to businesses that are profitable. To check if a business is profitable, we can quickly check a ratio EPS which stands for Earnings per Share. you can read more about EPS here in this blog. A positive EPS number is advised. Positive EPS shows that the company is making profits. We can check EPS of any stock by looking at google or visiting websites like Moneycontrol etc.

  • PE ratio

PE ratio helps us to filter a stock out of its peers for investment. The IT sector has multiple companies listed on the stock exchange, which one is relatively underpriced? We can answer this question by looking at the PE ratio of every stock listed in the IT sector. As a rule of thumb, the lesser the PE ratio, the more it can grow to reach the P/E of its peers. P/E is nothing but the current price of stock/EPS.

  • PEG

PEG stands for PE / Earnings Growth. This ratio goes a long way to indicate how the business might perform in future. The lower the PEG ratio, the better the stock is. Negative PEG is a warning that the business is either making losses or expected to make losses in future. A very insightful explanation of the PEG ratio can be read here.

  • Debt to equity ratio

Suppose you have to start a business and you need some working capital. You can use some of your own savings but if you run short of capital, you ask your friends/banks to fund your business and promise to pay back. The amount that you have to pay back, is a liability. Debt to equity is a simple measure of the amount you have to pay back/Your own capital infused in business. Even if your business doesn’t perform well, you will be under pressure to return money to friends/banks. But if you did not ask for any help from friends and banks, you have one less issue.

Ideally, debt to equity of 0 is desirable. This simply means that you do not have to pay back anyone.

  • Mutual fund holdings

Mutual funds have very qualified fund managers at the helm of affairs. They are vastly experienced and usually are early and fast movers. They know when to enter a stock; if they should keep buying it, if they should book partial profits and if it is the right time to exit the stock. We can take a clue from the activity of mutual fund managers in a particular stock. We can check mutual fund activity by clicking this link here and inputting the scrip name. Suppose we entered CDSL, we can see how the holdings of funds houses change over time.

CDSL fund holdings
Change in Funds holdings over time
  • Dividend yield

The dividend yield is a ratio in percentage, which conveys how much dividend is paid that year/Current market price of the scrip. Higher the dividend yield, the better it is. Zero or low dividend yield should not stop us from buying a stock though. Dividend yield should act as one of the last filters when one is confused between two businesses with very similar potential.

Where to begin?

thetrader Where to begin

Most of us know that a stock market is a place where fortunes can be made and we are always fascinated by it. We know friends and relatives who did well in the stocks market and we are influenced by them. No doubt that we want to enter the market and build fortunes for ourselves. But as a beginner, we lack some ideas and this blog would help you understand some of the basics.

What do we need to start in stock markets?

  1. Trading Account
  2. Demat Account
  3. Bank Account
  4. KYC Documents
  5. Proof of Income if you want to trade in Futures and Options

Trading Account is required to execute buy and sell orders on a stock exchange. The stock exchange is like a market where you try to bargain the best deal for yourself. Let’s create a situation to understand the same.

Suppose, at the stock exchange, you express willingness to buy 100 shares of ITC and in return, you would agree to pay 220₹ per share. for the deal to close, you have to pay 22000₹ in total and you will get 100 shares of ITC in return. In order to find a seller who would give you 100 share of ITC for 220₹ per share, you will log in to your trading account and place an order on the stock exchange to buy 100 shares of ITC for 220₹ each. Trading account provides us the platform access the stock exchange.

Demat account also known as dematerialization account is required to hold the shares on your behalf. Demat account stores the shares and the record in electronic form. The way bank keeps out savings, demat account keeps our shares. When we sell a share that we have bought and held for two days, the share will be sold from Demat account.

Bank Account is required to withdraw cash from trading account and to deposit cash in trading account. While linking a bank account to trading account, its always better to add a bank account which is internet banking/ Online payment enabled.

KYC Documents are required to keep a record of the person registering for Demat account. This serves a few purposes, the most important is to prevent money laundering. PAN card is mandatory while aadhar card can be submitted as proof of identity.

Proof of income is required if you want to trade in Futures and options. Futures and options are high risk/return instruments and anyone with limited capital should not enter into it. This is the reason why stock exchange guides brokers to make sure that the person trading in Futures and options has a steady income.

What Next?

Once you make sure you have these documents as stated above, you have to find a broker with whom you would like to open trading account. You can open demat account with the same broker. You can chose a broker as per you requirements but for a beginner, zerodha serves the purpose quite well. If in doubt, you can always compare two brokers on chittorgarh. Once you have decided the broker, head to their terminal and get started with the process. Those who would like to start with zerodha, can enter their phone number in the form and verify with OTP and check the page here for step by step guidance.

Once the accounts are approved, you can start trading after depositing some amount in trading account.

Trading versus Investing

thetrader Where to begin

Almost everyone has come across the term investing, trading, stock market, mutual funds and many such share market related terms which we would like to understand in a lucid and simple language. One such jargon is Trading. Let us go through what trading actually means and how different is it from Investing. Let us dive into the topic – trading versus investing.

Trading

Trading is the act of making a position in a financial instrument and exiting the position quickly. The time duration over which the position is held may vary from few seconds to few months at best.

Investing

Investing is an act of buying financial instruments and holding on to them for years and years. The time duration over which the financial instrument is held can vary from few years to even a few decades. While investing, the investor purchases an asset class and holds on to it.