Before sharing some of the rules that I shaped for myself on trading and investing in the stock market, I would like to highlight key principles that a good trader or investor needs to embed in his/her actions. Similarly, these principles are highly valuable to our life and are useful to master our habits and other disciples.
1.
Learn and grow!
In whatever sector you work, to become a
successful and satisfied person you must be willing to learn and grow in the
particular field. You must understand both the philosophical and technical
aspects of the work you are doing. Also keeping yourself up-to-date and
breaking the box of comfort is essential for growing yourself immensely. This
paper provides some philosophical and technical knowledge on being a better
stock market trader and investor in NEPSE.
2. Love what you do
If you are doing something that you do not
like doing, then you must stop. Learning what you love to learn makes way
easier than learning things that you do not like or understand. So, if you are
not into trading or investing – try to step in and see if you enjoy doing it,
with some cash and time of investment, if you still feel like you do not enjoy
watching markets and charts – then just stop and look for other things that you
enjoy doing. If you do not enjoy what you do, you’ll struggle to make money out
of it, and most importantly – you will start to be impatient.
3. Work hard!
Another crucial principle to become a
successful investor or trader is to work hard. If you want to be a happy and
successful person, there is no alternative to hard work, whatever field you
choose. One should be able to wake up early morning, sleep late at night, and
keep on pushing oneself to grow. And of course, to work hard – it is important
that you enjoy your work so that nothing can distract you from your work.
4. Perseverance
Inconsistency is a devil for success. Working
continuously to achieve the goal even after failing, again and again, is what
takes to be a successful trader. No matter what you are going through, what
challenges you are facing, the equal and consistent effort for a long period of
time can only make you spark.
5. Discipline
I don't think it is possible to become a happy
person without having discipline. Discipline makes you strong, focused, and
confident. To become a discipline in the stock market, you should not get too
much excited or panic about what you witness in the market. The market is
crazily volatile; days will be best and worst for you in the market, just
accept this fact and decide best. The market doesn't give you how much you
want, it gives you how much you deserve. So, be a disciplined player, you will
lose and win many times – just remember you’ll need to win the war not every
battle.
6. Buy businesses - not stocks!
Here I am borrowing a quote from a legendary
value investor and one of the richest persons in the world ‘Warren Buffett’.
Usually, when we buy stock, it is obvious that we buy the portion of that
business, but what we tend to think is that we are buying a stock of a certain
price. Meaning we usually do not think about the value of the company rather
wary of its value in the stock market. If you are going to buy the stock of a
certain company, whether it to be a small or big chunk, just think that you are
the owner of that company and remember it gives your profit out of its earning
in a long run. This mindset helps you to invest in a company that you
understand the business model to some extent and provides long-lasting benefits
to you.
7. Make your own decisions.
An alpha character is to decide yourself and
prepare for the result strongly. While in the market, it is very easy to get
excited or intimidated by thousands of opinions that knock your head off.
Remember, nobody is correct in the market, it is just the assumption they make,
instead of believing other people’s perception, start believing in yourself and
trade accordingly.
My trading rules at NEPSE
These trading rules are the product of my
about two years of learnings from being an active trader in the Nepal Stock
Exchange (NEPSE). I am still learning investment and trade, therefore, the
rules that I am sharing are not absolute. With time and with more learnings and
experiences, these rules will be changed or modified. Therefore, whether you
are investing or trading, just one to remember is that there is ‘there is no
rule in the market'. And of course, rules are not crucial – but learning from
your every action (in this case transactions) and observing the social
reactions (in this case market) are important. Thus, sometimes I even encourage
myself to break the rules – to get along with the market trends.
1.
Diversify portfolio!
I started trading in NEPSE as a safe player.
Most of my investments were in Banking and Investment and Trading sectors. In
due course of time, I realized that bull trend or bear trend circles from one
index to another. Try to have stocks from every index, so that you can enjoy
the roller coaster ride of the market.
2.
Stay organized -
possess few stocks.
Buy those stocks that you trust and can often
track. I once used to have more than 40 companies in my portfolio and I even
couldn't remember them. As a result, I wasn't able to trade it when I wanted
them to trade. It made my portfolio completely unorganized and I was in a total
mess. Today I hold 15-20 stocks both for trading and investment. Having few
stocks in your portfolio makes you organized and focused. You will be able to
learn how they move and how they react to the market. In the long term, such
observation will be rewarding for your trade.
3.
Every dog has its
day.
What you will need to understand is that every
stock in the market gets its turn. But sometimes, it might come very late.
Based on your position in the market, you'll need a different strategy to deal
with such behavior of the stocks. If you are an investor, it is better to hold
them - because the more it consolidates, the more there is a chance to blast
once there is a breakout. But, if you are a trader, analyze carefully - if you
think you can make money out of switching into another company, do not hesitate
to do it so.
4.
Cash is King
If your cash is waiting for your right
investment at the bank, then that is the best possible way to not miss any
unexceptional opportunities that the market often offers to the traders. Do not
invest everything that you have in the market, stay in cash and grab the
chance. Also, having some cash with you will help you to manage your expenses
and emergencies without having you sell your stock at an undervalued
price.
5.
Trade carefully, if
not partially
While trading in the stock market, most of the
time, it feels like you'll miss the best price to buy or sell if you do not act
instantly. And if you feel the same then, do see trading partially. Partial
trading will allow you to observe your decision while allowing you to change
your plan and decisions. What I have realized by now is that you will find lots
of buying and selling opportunities - if you miss one, there will be other
opportunities. So, do not panic, but be careful. And remember that you cannot
always buy and sell at the best point in the market. Simply accept it and do
your best.
6.
Learn analysis!
Learn both fundamental and technical analysis.
Fundamental analysis is basically about learning the past performance of the
company in real life - like its earnings, capital, assets. Such analysis gives
you an understanding of the real value of the company. Whereas technical
analysis is about learning the past performance of a company at the stock
market - through its price action, the volume of trade, using several
indicators like moving average, RSI, MACD, etc. While doing trading by analysis
- I just want to say that - do learn every day and do not forget your past
mistakes - if you do so you are doomed to repeat them.
7.
Be calm - not greedy
and fearful.
Greed and fear are two emotions that shape the
stock market anywhere in the world. But if you want to be a happy trader or
investor while earning decent profits out of your transactions then you will
need to control your emotion of greed and fear. Know your profit-booking areas
and stop loss areas and in most cases - do not let your emotion act
otherwise.
Key tips to buy and sell at NEPSE.
· Do not buy when the price has gone already up.
(EBL)
· Do not sell when the price is moving upward.
(NLG)
· Sell in the resistance level, if the value has
gone tremendously up. (BNT)
· Do not buy immediately after the correction -
let it consolidate first. (Nabil)
· Sell partial if your instinct says so. (Nabil,
CIT)
· You can't always sell at the top - sell
immediately if you see the sign of correction, don't expect a bounce back.
(CGH)
· Only buy for investment when the price is
down. Do not buy when the price is down for trading, instead buy at a breakout
level.
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