How to Invest Money in Share Market | Day - 4

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Trading : Trade - In real life when we make a deal such as exchange of products or services with money it is known as Trade. So basically in real life Trade means a deal.

In stock market when we buy the shares with money or sell the shares to get the money this is also a Trade.


So in core terminology exchanging of shares with money is termed as Trade and hence whoever will buy/sell the shares of a company will be considered as Trader.


But in stock market we use the term Market Participants to refer the person or organization who is involved in buying/selling(transact) the shares in stock market.


Here we reserve the word Trader for those kind of  Market Participants who buy/sell (transact) shares  to make money quicker without bothering about the fundamentals of business. He just takes care of price fluctuation in the market.


We categorize the Traders based on time span they hold the Position.


Here holding the Position means how long you stay in market with the shares you bought.


Let's say at 11:00 am you decided to buy 1 share of XYZ company, you will Enter into market to buy the share. Assume you bought 1 share at Rs 100 at 11:00 am.


After  2 minutes you noticed that share price has risen to Rs 103 and hence you decided to sell the XYZ share and Exit the market.


So you hold the share for only 2 minutes longer, you stayed in market only for 2 minutes.


You were in a Position from 11:00:01 to 11:01:59 where for few moments you were in loss Position or profit Position because of fluctuating price of share in market.


You Exited your Position at 11:02:00 so now you are not at risk and hence your heart-beat will become normal.  


Let's see how we can state the above situation in stock market terminology. 


You Entered the market at 11:00 am and Exited the market at 11:02 am. Technically you hold the Position from 11:00:01 to 11:01:59.


It can also be stated as follows : You Closed your Position at 11:02 am, You Exited from the Trade at 11:02 am.


When you find yourself in loss Cut The Losses and Exit the Trade


In winning situation you have two options.


You can Ride the Profitable Trade i:e you can hold the Position till your Trade is right.

You can Book The Profits in small-small amount so frequently i.e Exit the profitable Trade and place fresh orders again to Book another small profit if you are so confident that price will move keep moving in the same direction.

For reference it should be mentioned that Indian Stock Exchange opens at 9:00 am and closes at 3:30 pm. 


After opening, for the first 15 minutes they do their own task to set the market and finally 9:15 am onward one normal Market Participants can start buying/selling shares. 


Scalper - The Trader who Enters and Exits the market quickly usually within seconds. We can say the Trader who Closes his Positions within seconds are termed as Scalper

  • This kind of Trader tries to take small profits frequently.
  • Scalping can last from few seconds to minutes.
  • This skill is achieved at very expertise level.
  • It's not at all recommended for beginners.
Intraday Trader - The Traders who Close their  Positions on the same Trading Day.

Swing Trader - Who holds his Position longer than single Trading Day.


Trading - It is a art/skill  of participating in the market with the intent to make money quicker.


Some noteworthy points that qualifies the market action as Trading.

  1. Actual intent of participants is not to participate in business so they never bother about the fundamentals of business.
  2. No matter how longer they hold the Position but if they follow the procedure mentioned in point -1 .
  3. For them only two parameters to analyse are price and volume of shares(Past and Current).
Traders use techniques to analyse the past price behavior of share based on past price and volume of shares to forecast the price behavior of shares in present or future.
Accordingly they prepare themselves mentally how to react to market in a particular condition.

The technique above mentioned  to analyse the market is known as Technical Analysis.


Traders uses some tools to do the Technical Analysis known as Technical Indicator. Such as Bollinger Band, Simple Moving Average, Exponential Moving Average, Relative Strength Index etc.


Their assumptions are Human (Market Participants) will react in similar way in future when they find the similar condition of market and to a greater extent Professional Traders can be right in their Technical Analysis.


The professional who does Technical Analysis is known as Technical Analyst.


Terms:

   Trade, Trading, Traders. 
   Intraday, Scalping, Swing Trading.
   Market Participants.
   Technical Analysis, Technical Indicator, Technical Analyst.
   Professional Traders.

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