You have to catch them young. We are talking of training to be a share market investor or a trader.
How a student can pursue share trading and the benefits of it
Time, is said to be a great equalizer, but when it comes to investing it is the biggest multiplier. The sooner a person starts investing the higher will be the returns as he grows older.
Professional courses these days have a longer period of internship where a student learns on his job as well as earns a small amount. The amount is generally so small that students do not bother saving it and blow it up. However, if saved this small amount can lead to riches over time.
Let’s consider an example of what a small saving can do over a longer period of time. Suppose a young man at 20 years of age earns a stipend of Rs 10,000 per month during his internship. If he is undergoing a course like Chartered Accountancy (CA) his internship would be for a long duration. Assuming he saves Rs 60,000 in a year (Rs 5,000 per month) and invests the entire amount in a fixed deposit which gives an annual return of 8 percent and re-invests the interest earned as well from it.
By re-investing the interest earned the student is basically indulging in what is financially called as compounding. From second year onward not only will the student earn an interest on the principal of Rs 60,000 but also on the interest thereon. In the third year he would earn interest on the principal amount and the accumulated interests. This keeps on repeating till he decides to withdraw the amount. In simple terms it is making his money work for him. By the time this young man reaches the age of 50 he would have Rs 6.03 lakh in his account.
Check the link for calculation.
But as this young man is only 20 years of age and is pursuing a professional course, he could afford to be a little more aggressive with his saving plans and try a higher risk which gives a higher return instrument product like equities.
Over the years share market investments in India have given a compounded annual growth rate (CAGR) of 16 percent. If the young professional decides to invest his money in an equity index then by the time he reaches 50 years of age he would be sitting on Rs 51.51 lakh. That is a lot of money for any individual.
But the beauty of share market investments is that actual returns be picking on the right stocks can be much higher than 16 percent, which is the return of the benchmark index. There are many mutual funds who have given much higher returns. Savvy investors and traders have earned returns that are much higher than 16 percent.
Trading over investing
In terms of percentage returns a stock trading strategy has always given a much higher return as compared to a buy and hold strategy. However, trading requires more skill sets and awareness of the market than a buy and hold strategy. The stock trader has to be more pro-active with his position as compared to a buy-it-and-forget-it approach of long term investors.
Further, stock trading tests the emotional stability of a person. An open trading position can take a trader on an emotional ride from euphoria to despair in a matter of minutes. It is therefore best suited for those individuals with a cool head. For youngsters training to be a trader can go a long way in his personality development. Having said that stock trading is not easy, but a young person has time on his hand to learn the trade.
Steps to become a trader
Following is a step-wise way in which one can learn how to trade even while continuing with their education.
- Learn to Trade: First you need a Trading and Demat account to start investment in share market. you can open lowest brokerage Trading and Demat account with us. Then here are the few references to learn more about How To Start Stock Trading , How do I start Investing in the Indian Stock Market , Simple Tips for Starting to Invest in Stock Market.
- Finding what kind of a trader you are: Traders come in all shapes and sizes. There are the scalp trader who keeps an open position from a few seconds to a few minutes. Then there are the intra-day traders who trade in and out of positions many times during the day. Swing traders hold on to a position for a few days before their profit targets are met. Finally directional or trend traders latch on to their positions ranging from a few days to months. It is thus important to know what type of a trader one wants to become. The answer to the question is in understanding the personality traits of the person. Some people are comfortable with taking impromptu decisions while others like to think through before arriving at a conclusion. A would-be trader would need to find his or her comfort zone either through trial and error or self-introspection. For students, as it would be difficult to devout more time to share trading, it would be better to start with a longer time frame format.
- Developing a trading strategy: Along with the timeframe a trader needs to finalise his strategy. This could either be based on technical analysis, fundamental based or news based. Whatever the strategy a clear cut entry point exits and stop losses needs to be defined. These steps help in decision making especially during times of high volatility. The key to successful share trading is to keep decision making automatic. If emotions get involved, online share trading can lead to huge losses and as has been observed in number of cases, complete ruin is possible.
- Develop a trading plan: Online Share Trading is like any other business activity, it needs a well laid out plan that needs impeccable implementation. Everything from the trading strategy to the money at risk in each trade needs to be documented and followed religiously.
- Maintaining a log: The habit of maintaining a log and referring to it frequently is perhaps the biggest differentiator between a novice trader and a professional one. Self-learning is considered to be the best form of learning and it is especially true when it comes to trading. Many professional traders have been on record as saying that the best book they have read in their professional life as a trader is their own logs. One needs to flag their mistakes and make sure that it is not repeated. Eliminating their mistakes is how successful traders have reached to the top.
- Scaling up: One common mistake that most budding traders make is scale up their position after the first few winning trades. A series of losses not only wipes out their earlier gains but also their capital. A student with his limited capital and revenue source need not increase his trading quantities at least till such time that his accumulated profits have piled up into a substantial amount.
Share Trading is not difficult, but it needs the discipline and pragmatic approach to make it profitable. Further, it does not takes too much time of the day if one has found their strategy.
Most students, like any trader rely on market information or ‘tips’ to start their trading career in the stock markets. This makes them completely dependent on outside forces to make their decision making for them. Any business that relies on other for key decision making will sooner than later meet with a disastrous ending.
For a student, training to be a trader is the best way to become financially free as soon as possible with the additional advantage of developing his personality. But perhaps the biggest gain is that very early in their age they learn to appreciate the value of money.