A hardworking and ambitious individual passionate about the stock market can choose to be a stock trader. Individuals comfortable with the risk of high volatility can consider share trading as their career. Stock trading can be a significantly rewarding profession for individuals with trading and risk management skills. Let us discuss how to become a stock trader with the required skills.
What does a Stock Trader Do?
An individual involved in stock trading is a professional who buys and sells financial securities in the stock market.
- Stock traders take advantage of variances in securities prices and attempt to profit from buying and selling securities.
- Generally, they take a shorter-term view, from a few hours to a few days, on the markets. However, they can be positional traders who take positions for months also.
- They generally don’t bother about valuations but focus on the direction of the market movements.
Make sure you understand the stock movements and make informed decisions. A knowledgeable trader can find rewarding opportunities even during downturns.
How to Become a Stock Trader
The stock market is all about the right information when it is needed. Stock traders need to learn how to analyse financial information to make a trading decision. Stock trading requires capital, time, as well as research. Stock traders must have adequate knowledge of the markets.
There is no specific education to start trading. Open your demat and trading account to take positions in the market. One of the benefits of demat account is the easy trading process. New demat account opening is fast with scanned KYC documents. There is no specific educational requirement. You just need to be an 18+ individual with a valid PAN card.
Individuals can participate in the stock market in many ways. They can be day traders, scalpers, swing traders, momentum traders, margin traders, etc., depending on their skills and experience in the market.
Understand the Risks Involved in the Stock Market for Traders
Share trading has the potential for significant returns and risk. Potential returns and risks are correlated in the stock market. Major risks in stock trading are:
- Market or Systematic risk: It is the risk of recession, currency rate fluctuations, etc., that affects the whole market.
- Business Risk: It is the risk of the failure of management, unsatisfactory quarter results, etc., of the company you have invested in through your free demat account.
- Liquidity Risk: You may have invested in stocks with less liquidity. You may not sell them for a good price due to a lack of buyers.
- Regulatory Risk: Many sectors like telecom and pharma are highly regulated by the government. Any regulatory change may affect the stock prices.
- Loss of capital: The stock market carries a risk of capital loss. Therefore, traders need to deploy their surplus funds only.
- Risk of high volatility: You never know when the stock market may get affected by events or news and start declining, attracting huge losses for traders.
Analysing Skills for Trading
- Fundamental Analysis: As a stock trader, you need to analyse the fundamental values of a company. You need to analyse the company’s financial position to determine whether it is worth investing in for the short or long term. You can focus on its profit margin and receivables, financial statements – balance sheet, income statement, cash flow statement, statement of retained earnings, etc., before making an investment decision.
- Technical Analysis: The stock trader performs the technical analysis that involves statistics, averages, past data, volumes, etc., using analysing tools like correlation, regressions, inter-market & intra-market prices, and others. Such analysing tools help you to anticipate what a stock might do based on historical data.
What Strategies to be Followed to be a Stock Trader
- Follow the market rather than outguess it: A stock trader cannot be careless or bold to make bets against the market. They need to be as close to the market trend as possible.
- Manage your risk: To manage risk, decide how much capital you are willing to lose and trade accordingly with limited capital on each trade always.
- Be a keen researcher and a learner: Traders need to understand the companies whose stocks they are considering for trading. As a trader, you need to go through a continuous learning process of analysing.
Thus, it is an exciting career option for individuals with a high-risk appetite that requires you to stay updated on the world news and know how it impacts markets globally. Stock traders need to constantly do research and market analysis to minimise the risk with the best possible trading decisions.
