If you wish to make money from trading in the share market from short-term trading (1 to 90 days) and from medium-term trading (6months to 18 months) then for that your portfolio should consist of how many shares and how to invest in various companies? Let us find out.
While trading in the share market if we invest our entire capital in one single company then the risk involved there is high because if our prediction goes wrong there then we might have to face a huge loss there. Hence, it is important to diversify your risk by investing in a few different companies because not all our trades will go wrong here. So, does that mean we should invest in the shares of 50 different companies? Absolutely not. We should not over-diversify our investments. Then in how many companies should we invest our money? In the share market when we invest in the shares of different companies then that together is known as Portfolio. So then how many shares should our portfolio consist of? The answer is 10. That means our portfolio should consist shares of 10 different companies at the maximum.
Now how should we do these investments? For this it is important to follow the following steps. Firstly, you need to check the Market Valuation. You can check the market valuation either through Nifty PE or through the Warren Buffet Indicator. If the market valuation is expensive or high, you need to invest less while trading whereas if the market valuation is low then you can invest more in the share that you have chosen for investment.
Secondly, before investing it is important to check the direction in which the market is moving. If the direction of the Index i.e. Nifty is positive then you can invest in shares which show a positive trend. Whereas, if the direction of the Index is negative then till the time haven’t earned enough profit in the cash market, you should not indulge in any trading if the market is currently negative. One can earn money by trading bearish in the market but to do that you need to have a lot of patience and you and if you want to earn money by way of short sell that is trading bearish then it is possible in Future & Options market. And future & options market means Derivatives market where there is high risk. So till you make enough profit from the cash market, it is advisable to not go to the derivatives market till then. Thus, if the direction of the market is negative before trading then we need to wait patiently till the direction of the market turns positive.
Coming to the third step, how should we carry-out this investment? The answer for this is one trade per week. This means, in every week you should first check the market valuation then check the market direction, if it is positive then invest in that share only whose trend is positive. Whenever you trade or invest, always place a stop-loss and target. In this way if you follow these above mentioned steps while trading in the market then you can earn good returns.
To earn good returns by trading in the market, you need to always remember one rule and that is, ‘Trade only when there is an opportunity in the market.’ Also, there are two types of patience in the market; first is investing in the right share at the right time and holding that share until it either hits it’s target or stop-loss and the second is not trading until you get the right opportunity in the market. Thus, if we follow the above mentioned rules, we can earn good returns from the market.
Until our next blog…
Happy Trading, Happy Investing!!!
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