While it is true that the stock market can help an individual to multiply their money, it shouldn't be forgotten that it comes with its fair share of risks as well. Many traders believe that there is some 'holy grail' which is a sort of working strategy that they can implement to generate abundant wealth from the market. However, any experienced trader will tell you that there is no such thing.
Now, with that thought out of the mind, let us discuss the more important question: what does it take to become successful in the stock market?
The answer is that there are no shortcuts and there is no specific strategy that everyone can use. If there were one, well, everyone would already be using it.
There are, however, certain things that one can do to increase their likelihood of finding success and avoiding losses. We may even call them the 5 mantras of successful stock trading.
1) Realistic Expectation
This may not sound like much but it is the most important one. Know what you are getting yourself into and don't enter the market with false expectations. There is no such thing as achieving a 100 percent return overnight. It requires patience to make money from the market. Instead of taking huge risks and burning your investment, plan a strong and steady approach. Think of it like this: even if you make 1 percent a month. You would've made 12 percent in a year – which is not bad at all.
2) Use backtested strategies
This one applies to automated trading, which, by the way, is one of the best ways to trade stocks – especially for amateurs. A trading strategy is simply a set of algorithms that help to make a profit from the market. However, before implementing a strategy, make sure to know that it's backtested. Backtesting is done by running the developed strategy on old data. If the strategy delivers promising results there, chances are, it'll do so in the live markets as well.
3) Control your emotions
Keeping your emotions in check is essential if you want to make money from the market. Given the high-stakes and volatile nature of the market, investors are often consumed by fear or greed – both of which are dangerous emotions to exhibit in a stock market.
4) Post-Trade Analysis
Regardless of whether you make a profit or incur a loss, you must analyze your trades. In case you made a profit, it'll help you to find out what it was that led to success. In case you incurred a loss, you'd get to identify your mistakes so that you don't repeat them.
5) Collect Knowledge
A trader's real edge lies in the 'knowledge' he/she possesses. Keep the hunger to learn alive and you'll stay successful. Many successful traders attribute their success to this factor so it must be important.
Make sure you follow these 5 mantras when you enter the stock market and you'll definitely find success. Happy trading!Disclaimer: The views and investment tips expressed by investment expert on Moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.