How to earn good rewards using short-term and medium-term trading?
In order to carry out short-term trading by investing in the share market i.e. for a period of 1 to 90 days as well as to carry out medium-term trading i.e. for a period of 6 months to 18 months, you should understand the kind of portfolio of shares you need to carry. Also, you’re required to know how to invest in various companies.
Let us understand how to do it in a step by step process:
Firstly, while trading if we invest our entire money in a single company, then in such a case the risk is slightly high. Because in case our prediction goes wrong, we may face a huge loss. So in order to diversify the risk, it is very important to invest in a number of companies rather than just investing in one single company. If we invest in the shares of various companies, it’s a possibility that not all our trades will go wrong.
Now, does investing in multiple companies means to invest into 50 different companies? The answer is no! We should not over-diversify our investments. So then how many companies should we invest into?
While investing in share market by means of investing in the shares of multiple companies, together is known as Portfolio. How many company’s shares should a Portfolio contain? The answer to it is 10 company’s shares at the maximum.
Secondly, how to carry out this investment? For this you need to follow three important steps:
Before investing, you need to understand the market valuation, which can be found out using tools such as Nifty PE or Warren Buffet Indicator. Market value is assessed using numerous metrics and multiples, such as price-to-earnings, price-to-sales, and return-on-equity, etc. So if the market valuation is high, then while trading you should invest less. On the other hand, if the market valuation is low, then you should invest more in the share you’re trading into.
Before investing you’re supposed to check out the direction of the market which can be seen using the Nifty index.
Nifty is the acronym for the National Stock Exchange of Indiaʹs stock market index for the Indian equity market. The full form of NIFTY is National Stock Exchange Fifty. It represents the weighted average of 50 Indian company stocks in 12 sectors and is one of the two main stock indices used in India, the other being the BSE Sensex.
So if the marketʹs direction i.e. Nifty’s index direction is positive then the shares which are in the uptrend should only be traded. And if the direction is negative, then till the time you don’t earn stable returns in the cash market; you should not trade in the share market.
Understand, if you wish to make returns by making a bearish trade while the market valuation is low by staying patient then it is only possible by way of trading into Future and Options; which means in the Derivatives market where the risk is high.
Till the time you don’t make huge profits in the cash market, you shouldn’t step into the derivatives market. This means if the direction of the market is negative before trading, then you should stay patient and avoid trading till the time there is a positive signal.
How to make this investment? The formula for this is simple; one trade in one week. It means every week you should first check the market valuation if it is high, then you need to check the market direction if it is positive and then invest in only that share whose trend shows a positive signal.
While investing, one should invest by following a stop-loss and target. We have a separate article; explaining the concepts of stop-loss and target. In this way, while trading if you follow a step by step process then you’ll earn better returns.
While trading in the share market, one rule should always be followed, we should trade only when we see a positive opportunity and then try to seize it.
In share market there are two types patience’s one should have:
First is to hold onto the right share by investing right till the time it either reaches the target or the stop-loss.
Second is till you don’t find the right opportunity, you should not trade.
If we follow these rules, we can definitely earn good returns in the market. Till then…
Happy Trading, Happy Investing!!!
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