Because of the COVID, a lot of people lost their jobs and later when the pandemic subsided they never went back to their regular jobs again.
Those people decided to do something on their own and not depend on others. They wanted to be self-employed so many of them started trading online. Yes! Buying and selling stocks.
You too can do the same. You just need a laptop, internet connection, and a trading account with a brokerage firm, and you are good to go.
In this article, you will learn how you can enter the stock market, choose the right stocks and earn good returns on your investment every year.
So let us get started …
Step 1: Learn How Stock Market Works?
To be honest, as a beginner you know nothing about the stock market. You have no idea how they function, what are market cycles, factors that affect markets, etc.
You need to realize the risk involved while investing in the stock market. You have to do a lot of research and groundwork before you take a plunge.
You don’t have to spend even a dime to learn about stock markets. Everything is available for free on the internet.
You can start with following business channels and popular websites like CNBC, Bloomberg, Cheddar, Investing.com, etc. Read top business newspapers online and listen to influential investors & traders on YouTube, Spotify.
All this is for free! There is no dearth of literature online. Invest your time into reading and listening, in a matter of few months you will develop the psychology needed for investing in stock markets.
Step 2: Open an Online Brokerage Account
Once you have gained substantial knowledge about the stock market it’s time to open an online brokerage account through trading apps.
After doing some research you might have developed a fair idea about investing. How investing is different from trading?
If you just want to invest and not trade then you can open an account with a full-service brokerage firm. Their brokerage fees are very high but financial advisors will give you suggestions, tips, and all the necessary guidance an investor needs.
However, if you just want to trade then you can choose a discount broker. They charge a flat brokerage fee which is very nominal. You save a lot of money. You can also invest but there will be no help from your broker.
I personally love discount brokers like Zerodha and UpStox. I have accounts with both of them. Opening an account with a broker is a very simple process and you can do it online.
With a brokerage account, you can start investing or trading, whichever you like.
Step 3: Choose a Sector You Like the Most
Once you have opened an account with a broker you can get back to your research. You need to further narrow down your research.
The stock market consists of companies from diverse sectors like financials, banks, IT, auto, energy, FMCG, Pharma, media, reality, etc. There are private as well as government companies.
You can further divide companies into blue chip, midcap, and smallcap companies. Choose a sector that you personally like and are interested in.
If you take my examples then my favorite companies were PSU units aka government-owned enterprises like banks and oil companies.
The first shares that I bought were of a governed-owned oil company named BPCL. I worked for BPCL as a sales manager for over 3 years. So I had good knowledge about the company and decided to buy some of their shares.
If your area of interest is financials then go for banks and NBFCs. Some of you may have an interest in IT or Pharma then buy stocks of these companies.
Choose a sector that is close to your heart.
Step 4: Make Your Mind – Online Trading or Investing
Once you have made a final list of companies that you are going to invest in, you got to decide your investment horizon.
Whether you want to do day trading or hold stocks for a longer period of time, you have to make up your mind.
Because day trading is a lot different than investing over a long period of time.
In day trading, you have to learn more about technical aspects like reading charts, trading methodologies, technical analysis, etc. But investing is all about reading the balance sheet of the company, learning more about their management, dividends, etc.
Trading and investing involve different strategies. So be clear about what you want to do.
Step 5: Screening Stocks on Various Parameters
There are hundreds and thousands of companies in each sector; you can’t invest in all of them. You got to choose a few companies that can give you high returns in the coming years.
If you are investing then you must choose companies after reading their balance sheet. Analyzing a balance sheet of a company is not an easy task. It takes years of experience and knowledge to be able to analyze the balance sheets of different companies accurately.
For example, you should always choose a company with very low debt and high profit. Some other parameters to look into are EPS (Earning Per Share), P/E ratio, Debt to Equity ratio, Book Value per share, etc.
Similarly, if you just want to trade then screen stocks for parameters like Moving average (MA), Exponential MA, RSI, Oscillators, all the leading and lagging indicators.
Step 6: Creating a Portfolio
You have almost finished 90% of your research work. Now you need to create a portfolio of stocks to not only give you high returns but also mitigate risk.
For long term investors building a portfolio is always a challenging task. As a rule of thumb, your portfolio must be diverse. It should include not only blue-chip companies but also small and midcap companies.
As a beginner, I would suggest you to choose companies that are constituent of major indices like Nifty 50, Nifty Next 50, Midcap, etc.
While constructing a balanced portfolio you can always consult your financial advisor.
Step 7: Decide Quantity, Order Type and Buy
Now you are through with all your research, it is time to buy some stocks. You can either buy stocks on your own or ask your agent to book stocks on your behalf.
Wait for the right time when you think the valuation of the stock is very low and it is time to enter the stock. Decide the right quantity and buy according to your budget.
You just have to click on the order button and your order will get executed. It is very simple!
Step 8: Monitor Your Portfolio and Re-balance
You have to watch your stocks daily. How is it performing? The best way to monitor your stock is staying in touch with the markets daily. Listen to experts and industry leaders what they are saying about the company and the sector in general.
If there is a policy change or a new law being introduced that can affect the sector adversely then you need to get out of that stock immediately. But if there is good news about the company then you can increase your holdings by buying more stocks.
Keep monitoring and re-balancing your portfolio.
These were 8 simple steps that you must take before buying stocks online. Before entering in stock market you should also consider the risk involved and have enough money to cushion against losses.