Do’s and Don’ts of Stock Market

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The stock market is a field open to all, but all may not remain in profit, in a sustained manner. For disciplined players, it offers a lot of excitement, bouquets and glory, but for the impatient and greedy, who step in for a quick buck, the stock market might prove to be a bed of thorns. Nonetheless, equity investing is a proven way of wealth creation for informed and disciplined investors. Traders and speculators may not always win, but long-term investors, big or small, hardly lose! For success in the stock market, the following dos and don’ts may prove to be path-breakers.

Do’s:

To begin, obtain some fundamental information and understanding about stocks and the stock market.

Observe, wait, and watch. Begin with a dummy portfolio of 4-5 equities. This will provide you some insight into market behaviour and will help you acquire confidence and conviction.

Begin slowly and steadily with mutual fund investing.

First, invest in smaller lots in a staggered way, using methodical investing plans (SIPs).

Establish your own realistic and speculative target price for a stock or mutual fund in the secondary market.

Maintain a stop-loss for stocks.

Adopt this rule of thumb: purchase when people are running to sell and sell when people are running to buy. The clearest evidence for this idea is that those who invested in stocks during the early Covid period, when valuations were significantly lower, were paid the highest in 2021.

Profits are occasionally booked at the right time. Profit in the bank is preferable to profit in the books. It’s exciting to see gains on one’s portfolio, but these are only theoretical. Booking profits reduces the cost of your holding.

Profits should be reinvested to the greatest extent possible. This will aid in the steady growth of your wealth.

Maintain a long-term perspective of at least two years.

Maintain a stop-loss for stocks.

Consider dividend yield, daily trading volumes, and daily deliveries when purchasing a stock, in addition to known factors such as promoter credibility, business model, and so on.

For stock selection, keep an eye on trader’s favourite stocks. It is frequently useful.

Don’ts:

Don’t buy a stock based on a rumour, expert advice, recommendation, or recent news. They could have a vested interest in their origin. Nonetheless, keep an eye out for genuine news, information, and analysis. Make a decision once you’ve been persuaded.

A novice should avoid dealing with derivatives such as futures and options. On the surface, these appear to be rich and fulfilling, but the risk is significantly greater and more destructive. Different market sectors necessitate a distinct skill set.

Anybody who says phrases like “guarantee” or “guaranteed returns” should be avoided. Uncertainty, unpredictability, and volatility are not the exception but the rule in the stock market.

When taking profits on a stock in which you have confidence, do not sell the entire lot; instead, sell a portion of it.

Don’t be greedy. It will not always be able to sell at the highest price levels. Profits should be booked at a reasonable price, in your opinion. It is usual for a stock that has been trading around the upper circuit for a few days to reverse abruptly. In such a case, take a partial profit and re-enter at a more favourable time.

Don’t make investments using borrowed funds. This could be doubly dangerous.

Don’t freak out in a bad situation. Without a doubt, the stock market is influenced by sentiment, and any negative news can severely impact the market. In such a case, be wary and proceed with caution, as this could be a good moment to buy low-priced stocks.