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This article is more than 6 month old.

Five strategies to earn from stock markets

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Investments done in the stock market include several benefits, such as the potential to earn dividends or an average annualized return.

Five strategies to earn from stock markets
One of the biggest steps towards wealth building is investing in stocks in the right way. Over the years, the stock market has proved to be generously fruitful to investors. But due to its volatile nature and popularly attached notion “Stocks are risky”, it implies that the returns are never guaranteed.
Investments done in the stock market include several benefits, such as the potential to earn dividends or an average annualized return.
The stock market in comparison to other avenues is one of the most lucrative avenues for earning money. However, the stock market has been quite volatile in the past few years, especially after the Covid pandemic, leaving a number of investors wondering, whether they should sell or hold on to their stocks. In such instances, there is no ideal way or formula that can guarantee success in the stock market, but there are certain rules that an investor can swear by to increase their chances of achieving profits.
Never try to time the market:
Investors should always avoid the impulse to time the market, as it is often misconstrued. Relying on mere predictions, in hopes of outperforming, the timing market is not a smart move. If the timing is right, one can end up earning a fortune, but if one is wrong, one might lose more than the invested amount in the first place. Some people state that it is an impossible task and others claim that they can do it perfectly for a small fee. The truth, however, lies between the two extremes.
Long term vision of the market is always uptrend, the basic premise is indices will create new highs with time. There are two simple reasons for the basic premise
1. The companies that are growing and best in the industry are part of indices.
2. The growth always means that the companies that serve inflation and interest cost.
In case you try and time market, in short-run one may lose money, but long term trend will be positive.
Gather information on stocks before investing
Markets are forward-looking and for both rookie investors and pros alike, the goal is to find stocks that display some of the most amazing traits and peeping in the future is the biggest contributor. Arrays such as explosive earnings and sales growth, strong returns on equity, fast-growing and industry-leading product or services and strong demand among mutual fund managers.
Looking out for trends in a company’s growth and witnessing general growth, is a good indication that the company is doing something right. If the future plans are good and the promoters have planned the next 10 years even small but regular improvements will be a great entry point, but growth in earning and value has to go hand in hand in order for the stock to be worth the investment.
Never get emotional
The investor’s rationale for entering the trade should be very clear. People with rational minds make up the ideal investors, an early loss should not create any inhibitions and emotional impulses. They make sound and efficient investment decisions. Ruled by emotions, we often end up doing the most inevitable – buy high and sell low. Such tendencies are harmful for your financial wellbeing as it tracks away from financial goals.
While trading, investors have a lure of making more money, thus they end up investing holding shares. Therefore, fear and greed are the worst emotions in the realm of trading in shares.
Investment decisions using Technology
Today investing can be done using artificial intelligence. One can create screeners for identifying stocks, a lot of software like Bloomberg, ACE equity, Reuters are available and websites like myfindoc.com, screener.com etc. are available for creating screeners.
Investing and trading can be done using Algorithm in a convenient trading method wherein orders are executed by softwares on their own with pre-defined strategies and methods. Traders and investors are gaining grip over trading on algo platform as it involves maximum use of technology, which eliminates errors due to minimum human involvement.
Algos, in theory, can create profits at a speed that is impossible for a human. Apart from profit opportunities, it provides the market with more liquid and makes trade more systematic by ruling out human emotions.
Understanding risk profile
This can be practically inculcated in investment habits by dividing capital in two parts, capital and risk capital. Risk capital means a sum of amount, in case the investor loses, do not lose sleep over it.
If the investor knows what risk capital is, he has defined his risk profile, and then he would not be worried of the capital deployment. There is no doubt that investors may lose money in stock market, saying that, it is always advisable to understand the exit route.
Investors can always hope for the best while investing in the stock market, but if their expectations from the investment in matters of returns are unrealistic, they might get into some real trouble. It is vital to establish the attitude to risk, before investing, as it is an important part of investing. The value of investment might go up as well as down, there’s a fair chance that one might lose some or all of investment.
Investing in stock markets, over the years has been a lucrative deal for investors. There have been instances of people getting wealthy overnight from investment in the right stocks. But one has to understand that the stock market is not only a gamble but involves understanding and capabilities of taking some risk.
The author, Nitin Shahi, is Executive Director at Findoc Financial Services Group. The views expressed are personal
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