Top 5 Strategies to Make Money With Stock Market

Investing in the stock market has become one of the most common strategies for accumulating wealth and saving for long-term goals such as retirement. But coming up with the most effective investment plan can be challenging. While there are a number of easy and affordable ways to invest, it doesn’t have to be that way. The stock market is a level playing field, but not everyone can be consistently profitable. For players who are focused, the markets can be a source of great excitement, profit and glory, but for impatient and greedy players who want to make quick profits, it can also be a bed of thorns. However, investing in stocks is a proven means of wealth growth for informed and disciplined investors. According to NSE filings, investors can expect returns on their investments of around 17 percent per annum due to the abundance of growth opportunities. So, in order to choose wisely among stocks and make money, investors need to establish criteria, develop methods for spotting outstanding businesses, and practice discipline.

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The Basics of Stocks

Stocks form an important part of any investor’s portfolio. These are shares of a publicly traded company that are listed on the stock exchange. The percentage of stocks you hold, the sectors you invest in, and how long you hold them all depend on your age, risk tolerance, and your overall investment goals.

Discount brokers, advisors and other financial professionals can get statistics that show that stocks have generated excellent returns for decades. However, holding the wrong stocks can just as easily destroy fortunes and deny shareholders more lucrative profit opportunities.

Tips on how to earn money in share market daily

1. Multiple Trades, Small Profits – The key to making money daily in the stock market is to focus on small profits by making multiple trades. Keep in mind that achieving 2-3% profit in one transaction is not realistically possible often. However, with a strategy of a few small trades, you can increase your number of wins, even though the size of the profits may be smaller. As a trader, it’s up to you to make money whenever you get the chance. This strategy is one of the answers to make money daily in the stock market.

2. Watch out for stocks in the news – Want to know which stocks to buy and which to sell? Or which company stocks are performing better and why? You can find the answer to all your questions about the stock market in the news. All you have to do is decide which story to believe and which to ignore. It is important to read information coming from reliable sources because they understand what most traders don’t. The news can tell you a lot about the stocks on the news and which ones you should trade to make a decent profit. Take any information with a pinch of salt, do your own research before blindly believing the news and investing your money in stocks that just won’t give you the results you want. Be careful about financial rumors, especially those that will affect your business decisions.

3. Use the stop-loss order –This is one of the fundamental rules of the stock market that every trader should swear by. Use a stop-loss order to minimize losses. It is an automatic order that allows traders to buy or sell a stock once its price reaches a certain level. Using a stop-loss order can help you protect your capital. Most traders consider this feature essential to increase profitability in the stock market. This feature also protects the trader from various market fluctuations. Want to earn better daily returns? Implement a stop-loss order in your daily trading transactions.

4. Reduce trading costs – As a trader, you must remember that every trade comes with a price. You as a trader will have to incur expenses regardless of the profit or loss achieved. So when you make many trades, you also spend a lot on those that you could save if you made planned decisions. Plan and make a list of which stocks to buy and which to sell. Keeping all other expenses to a minimum can help you make daily profit in the stock market.

Top 5 Strategies to Make Money With Stock Market

You probably won’t experience serious growth without paying attention to some basic market principles and best practices. Here’s how to make your portfolio do as much of the work for you as possible.

1. Take advantage of time

Although it is possible to make money in the stock market in the short term, the real earning potential comes from long term investing and the power of compound interest. As your assets increase in value, the total amount of money in your account grows, creating room for even greater capital gains. This is how profits in the stock market increase exponentially over time.

But to make the most of this exponential growth, you need to start investing as early as possible. For example, let’s say you stashed away $1,000 in your retirement account at age 20 and plan to hang up your work hat at age 70. Even if you don’t put anything else into the account, you could be looking forward to more than $18,000 after 50 years. growth assuming a relatively modest 6% rate of return.

If you had waited until age 60 to make the initial deposit, you would have earned less than $800 through compounding.

2. Invest regularly

Time is an important part of the overall growth of your portfolio. But even decades of compounding returns can only do so much if you don’t keep saving.

Let’s go back to our retirement example above – but this time, instead of putting in $1,000 and forgetting about it, let’s say you contributed $1,000 a year.

If you started making these annual contributions at age 20, you would have saved about $325,000 by your 70th birthday. Even if you waited until age 60 to save, you’d end up with about $15,000 — a far cry from the measly $1,800 you’d withdraw if you just made the initial deposit.

Contributing regularly doesn’t have to take a lot of effort; you can easily automate this process through your 401(k) or brokerage account by depositing a set amount each week or pay period. We even have a list of the best brokerage accounts to help you get started.

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3. Set it and forget it — mostly

If you’re looking for healthy returns on your stock market investments, remember – you’re playing the long game.

First, short-term trading like day trading lacks the tax benefits you get from holding your investments longer. If you sell the stock before you’ve held it for a full year, you’ll pay a higher tax rate than you would on long-term capital gains—that is, stocks you’ve held for more than a year.

While there are certain situations that require you to take a look at your holdings, most of the time even serious market dips like bear markets will reverse themselves over time.

4. Stay diversified

Every investment involves risk – it is possible that some of the companies you invest in may underperform or even disappear altogether. But if you diversify your portfolio, you’ll be protected from losing all your assets when investments don’t go as planned.

By ensuring that you invest in many different types of securities, you will be better prepared to weather stock market corrections. All industries and companies are unlikely to suffer the same or succeed at the same level, so you can hedge your bets by buying everything you can.

5. Consider working with a pro

We hire experts for everything from our healthcare to plumbing needs. Your investment deserves the same kind of professional experience. Financial advisors can help you create a long-term investment plan and could turn out to be the most important investment you make. Not only do professionals know how to make money in stocks, they can also help you with a wide variety of personal finance topics such as budgeting, college education planning, or even estate planning.

And working with a financial advisor probably costs less than you think.

3 common stock market mistakes to avoid

1. Trying to time the market

One of the most common mistakes investors make is letting their emotions derail their long-term plans by buying or selling stocks based on market movements. However, as we noted earlier, investing in the stock market is a marathon, not a sprint. While it can be hard to sit tight when the market is falling, keep in mind that the stock market has always recovered from a downturn.

Acting on emotion and buying or selling stocks based on market movements – or trying to time the market – is not a sound investment strategy. Instead, try dollar cost averaging, which means you invest your money evenly and regularly over a longer period of time.

2. Picking the new, hot stock

Getting the hottest new IPO can be tempting, and investing can certainly be exciting. However, experts generally recommend not picking and choosing individual stocks to invest in.

As we mentioned earlier in this article, you should maintain a diversified portfolio that doesn’t just include the latest and greatest new stocks. For this purpose, it may be better to consider index funds, which consist of a well-diversified mix of stocks that replicate the composition of the underlying index.

3. Not respecting your risk tolerance

Another big mistake new investors can make is not respecting their risk tolerance and either taking on too much or too little risk. Your risk tolerance is based on a number of factors, such as your time horizon and personal comfort level, and should inform your portfolio’s asset allocation.

If you take too much risk, you may face large losses or be forced to cash out of the market too soon. On the other hand, play too safe and you can lose compounded gains. The key to making money in the stock market is to figure out your risk tolerance and then stick to it.

How Do You Pick The Right Stock?

To pick the right stock, you need to do a thorough research on the company. It’s like doing your research before buying a car. First, you would compare different models, research the brand and much more to decide which car is the best. Similarly, when researching the right stocks to invest in, you need to look for these five things. This may seem daunting to many, but I have even provided an easier way to eventually make money from stocks. So don’t forget to read the whole article.

1. Analyze the sector and the industry

We’ve all heard of the top-down approach, right? If not, we’ll figure it out quickly. A top-down approach focuses on the bigger picture first. So first we look at the performance of the overall economy, then at specific sectors, then comes the industry and finally the company. There are different sectors in our economy. Major ones include financial services, information and technology (IT), consumer goods, oil and gas, and pharmaceuticals. But why should you analyze a sector instead of a company in the first place? This is because understanding the industry the company operates in will help you understand how the company might perform in the future. When an industry thrives, so will most of the companies that belong to that industry. For example, the IT sector after Covid-19. Most of the IT companies reported amazing returns after the Covid-19 pandemic. Because even if you invest in any known company but this sector is under par. There is a high probability that your stock will not perform. For example, the airline industry is known to be a difficult operation. So when you think about how you could make money in the stock market, the first thing you should look for is the right sector. Next, you need to look for booming industries in a particular industry. You may be wondering what the difference is between a sector and an industry. A sector is a larger segment of the economy. Industries are a structured group of businesses in a certain industry. For example, the financial services sector is diversified into a wide range of businesses such as the mutual fund industry, banking businesses, non-banking finance companies (NBFCs), insurance companies and many others. So you need to look for booming industries from a specific industry.

2. The business model of the company

Once you have chosen a booming sector and industry, you need to compare stocks and analyze the business models of different companies. You need to choose a company that is constantly improving its technology and adopting innovative practices to improve its efficiency. Such companies have a higher chance of long-term sustainability. Let’s take the example of Jio Fiber. It provides broadband and high speed internet. Therefore, it is known to be the best among its competitors in the telecom sector. So, to pick the most promising company, you can simply look for the company’s unique selling points (USP). You can also do a Strength, Weakness, Opportunities and Threat (SWOT) analysis.

3. The management of a company

This is one of the most overlooked areas in stock analysis. Investors rarely pay attention to the quality of the people running the business. This is a huge mistake. Management is the backbone of a successful business. A company’s management is responsible for delivering value to its shareholders. Decisions made by management will affect the company and ultimately the stock price. Therefore, you must refer to the management commentary or the Management Discussion and Analysis section of the company’s annual report to know their views on the industry and business. Here, management also provides insight into their future goals, opinions, challenges and much more.

4. Financial statements of the company

Another important thing to check in a company is its financial statements. This data is readily available to us these days. All you have to do is go to the investors section of the company’s website. You must review the consolidated financial statements, not the separate statements. This gives you a comprehensive view of the entire group of companies. When studying a company’s financial statements, consider the following:

• Balance sheet – shows the company’s total assets and liabilities.
• Income statement – ​​shows aspects like income, expenses, taxes, etc.
• Cash flow statement – This is a reflection of the cash flows needed for the day-to-day survival and liquidity of the company.

You must also check the annual reports which describe the important activities carried out in the financial year.

5. Financial ratios of the company

This is a shorthand for studying a company’s detailed financial statements. Financial indicators will help you analyze and compare the company’s key parameters. Here are some important ratios to consider when choosing the right stock.

1. Profitability ratio

The profitability ratio will help you analyze how much profit the company is able to earn from its capital. Profitability ratios include:

a. Return on Equity (ROE)  Return on equity = Net Income / Shareholder’s Equity It measures the ability to generate returns on equity capital. Here you need to compare the industry average ROE with the company ROE. Ideally, a company that ensures ROE consistency and growth is the ideal investment option.

b. Return on Asset (ROA) Return on Assets = Net Profit / Total Assets It measures how efficiently a company uses its assets to generate revenue. You need to look for stocks with high ROA. The higher the ROA, the more efficient the company.

c. Return on capital employed (ROCE) ROCE = Earnings Before Interest and Tax (EBIT) / Capital Employed ROCE determines the returns generated on the entire capital i.e. equity + debt capital.

 2. Liquidity Ratios

Do you ever go grocery shopping without money? No, right. Similarly, for smooth day-to-day operations, the company must have sufficient liquidity. Liquidity ratios measure a company’s ability to meet its short-term obligations. Recommended watch: What is a liquidity indicator?

3. Solvency ratios

The solvency ratio compares the company’s debt level with its assets. While the quick ratio measures the company’s short-term liabilities, the solvency ratio measures the company’s long-term liabilities.

a. Debt to equity (DE ratio) Debt to Equity Ratio = Total Liabilities / Shareholder’s Equity Debt to equity ratio shows how much debt a company has compared to its equity capital. A company with high debt will have to use its earnings to pay interest and principal. So shareholders can get a very small share of the company’s profits. Featured Watch: What is the DE Ratio?

b. Interest coverage ratio  Interest Coverage Ratio = EBITDA / Interest Expense Interest Coverage Ratio Interest Coverage Ratio = EBITDA / Interest Expenses The interest coverage ratio measures a company’s ability to meet its debts. Ideally, the interest coverage ratio should be high because it means that the company is able to pay interest on time. These are some of the most important points to consider when looking for the right stock. However, when analyzing a stock, you need to check whether the returns generated by the stock and the associated risk match your investment goals. If not, then the stock may not be right for you. Finding the right stock from over 4,000 listed stocks is really time consuming. You may have to read many books, analyze financial statements, financial ratios and what not. But we at Stock Basket have an easy way out. Stock Basket is India’s first buy-and-hold long-term investment platform. Through its proprietary Giga trading engine, Stock Basket analyzes over 2 million data points and curates mini-portfolios that contain the right stocks for you based on your risk profile and time horizon. So you can invest in high-quality stocks within minutes with a few clicks.

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