Basic steps in Stock market trading

Basic Steps in How Stock Trading WorksTrading stocks. You hear that phrase all the time, although it really is wrong – you don’t trade stocks like baseball cards (I’ll trade you 100 IBMs for 100 Intels).Trade = Buy or SellTo “trade” means to buy and sell in the jargon of the financial markets. How a system that can accommodate one billion shares trading in a single day works is a mystery to most people. No doubt, our financial markets are marvels of technological efficiency.Yet, they still must handle your order for 100 shares of Vsnl with the same care and documentation as my order of 100,000 shares of Mtnl.You don’t need to know all of the technical details of how you buy and sell stocks, however it is important to have a basic understanding of how the markets work.Two Basic MethodsThere are two basic ways exchanges execute a trade:On the exchange floorElectronicallyThere is a strong push to move more trading to the networks and off the trading floors, however this push is meeting with some resistance. Most markets, most notably the BSE, trade stocks electronically. The futures’ markets trade in person on the floor of several exchanges, but that’s a different topic.Exchange floorTrading on the floor of the New York Stock Exchange (the BSE) is the image most people have thanks to television and the movies of how the market works. When the market is open, you see hundreds of people rushing about shouting and gesturing to one another, talking on phones, watching monitors, and entering data into terminals. It could not look any more chaotic.Yet, at the end of the day, the markets workout all the trades and get ready for the next day. Here is a step-by-step walk through the execution of a simple trade on the BSE.You tell your broker to buy 100 shares of Vsnl at market.Your broker’s order department sends the order to their floor clerk on the exchange.The floor clerk alerts one of the firm’s floor traders who finds another floor trader willing to sell 100 shares of mTNL. This is easier than is sounds, because the floor trader knows which floor traders make markets in particular stocks.The two agree on a price and complete the deal. The notification process goes back up the line and your broker calls you back with the final price. The process may take a few minutes or longer depending on the stock and the market.

Stock Market Trading Rules

We are mentioning few golden rules for trading and investing in Indian stock market or in any other Stock market.If you want to be a successful intraday / day trader or Positional / Delivery investor then simply follow these golden rules."Trading runs in cycles; some are good, some are bad, and there is nothing we can do about that other than accept it and act accordingly" Think in terms of probabilities and act upon them. There are no certainties in trading. You can keep yourself out of trouble by thinking in terms of probabilities. Get comfortable with approximate predictions and interpretations."To trade/invest successfully, think like a fundamentalist; trade like a technician"Along with economic fundamentals that will drive a market higher or lower, but we must try to understand the technical as well."Don't be a hero. Don't fight the trend. Follow the money flow" You should forget the news, remember the chart as chart already knows the news is coming and buy on rumors; sell on news."In trading/investing, an understanding of mass psychology is often more important than an understanding of economics"Trading is a psychological game. Most people think that they're playing against the market, but the market doesn't care. You're really playing against yourself. Hope, fear and greed are not strategies: they are emotions. Simple emotions are not an effective strategy. Positive emotions could cause us to fail to apply risk precautions. Negative emotion could cause us to hesitate."Learn to monitor yourself and draw conclusions from your mistakes. "Predetermine maximum losses in every potential trade. Do not risk more than 5% of your capital on any trade. Don't average your losses."Buy that which is showing strength - sell that which is showing weakness"The public continues to buy when prices have fallen. The professional buys because prices have rallied. This difference may not sound logical, but buying strength works. The rule of survival is not to "buy low, sell high", but to "buy higher and sell higher". Furthermore, when comparing various stocks within a group buys only the strongest and sells the weakest."Think like a guerrilla warrior."We wish to fight on the side of the market that is winning, not wasting our time and capital on futile efforts to gain fame by buying the lows or selling the highs of some market movement. Our duty is to earn profits by fighting alongside the winning forces. If neither side is winning, then we don't need to fight at all."When you lose, don't lose the lesson!"Forget the names but remember the events. Those who don't remember the past are doomed to repeat it. Make mistakes with composure and character, without blaming others, and don't dwell on mistakes."Evaluate your results at least monthly".Monitor your P&L, your win/loss ratio, and the relationship between your biggest wins and worst losses. Reviewing these results helps you continually improve your understanding of the markets and yourself."When in doubt, get out."Scrutinize your positions at all times, each day, and you will not be left holding a stock without reason. Be willing to change direction at any time, because your flexibility as an individual investor is a big advantage which should be embraced!

Tips for Online Stock Trading

When new to online stock trading, start low with lots of shares such as 100, and avoid jumping in with orders for 1000+. Mentally, at first, a trade with 100 shares going against you is easier to take than one with 1000 when trading stocks.When online stock trading, you must know where your exit points in the trade will be, including your stop loss value. It is important to take losses and not let a losing trade run away while you hope it will turn in your favor later on. It’s very possible that it may not.Stock market tips also include looking at the previous day’s trading range by subtracting the high of the day from the low of the day. Stock chart patterns with large ranges will give more opportunities for larger moves for you to capture compared to stocks which only fluctuate by a few cents each day. When online stock trading, if the lead stochastic crosses below the 80 band consider this a sell signal, and if it crosses above 20, then it would be a possible buy signal.For futures analysis, if the futures are in an uptrend, but your stock is moving down this could signal a possible explosive move down when the futures start to go back down again. The same applies in reverse for moves up when online stock trading.If trading NASDAQ stocks, be aware of what the futures are doing. Stocks usually move with the futures. When online stock trading, it is typically a bad idea to short a stock if the futures are in a strong uptrend and vice versa for going long.