10 Steps to Decode Stock Market Success for Beginners to earn $2837 bi-weekly

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Picture yourself aboard a small boat navigating a vast and treacherous sea. In this analogy, the sea represents the stock market, an ever-changing and unpredictable environment filled with hidden dangers and potential rewards.

Lets learn about the following

• What are the Types of Trading?

• What are the Different Trading Instruments available to Trade?

• 10-Steps to Elevate your Trading Skills

• Checklist before taking Trading as Full-time Career

 1. Types of Trading:

Just as the sea has different currents and weather patterns, the stock market offers various trading styles to suit different preferences:

• Calm Waters of Long-Term Investing: This is akin to sailing across calm seas, where investors take a long-term approach and patiently ride out market fluctuations.

• Navigating Intraday Waves with Day Trading: Day traders are like sailors navigating choppy waters, making quick decisions to capitalize on short-term price movements.

• Weathering Storms with Swing Trading: Swing traders brave the stormy seas, seeking to profit from medium-term price swings while avoiding major market downturns.

• Scalping in the Rapids: Scalpers are like whitewater rafters navigating fast-moving rapids, making rapid-fire trades to capture small profits in a short amount of time.

 In the stock market, trading can be categorized based on two main factors:

1. Timeframe: This refers to how long a trader holds onto their positions.

2. Technical Approach: This involves the methods used to analyze and execute trades.

Here are four different types of trading based on the timeframe:

1. Scalping:

• Scalping is a short-term trading strategy where traders aim to profit from small price movements.

• Trades are held for very brief periods, often just minutes.

• Scalpers make numerous trades throughout the day to accumulate profits.

• It's worth noting that scalping requires expertise, and beginners are advised to avoid it.

2. Day Trading:

• Day trading, also known as intraday trading, involves closing out all trades within the same trading day.

• Traders seek to profit from short-term price fluctuations.

• For example, a trader might buy and sell a stock within a few hours to capitalize on price movements during the day.

 3. Positional Trading:

•  Positional trading involves holding positions overnight or for several days to weeks.

• Traders don't need to monitor the markets constantly and can hold positions for longer durations.

• Strategies like BTST (Buy Today Sell Tomorrow) or STBT (Sell Today Buy Tomorrow) fall under positional trading.

4. Investment:

• Investing refers to holding assets for an extended period, typically ranging from months to years.

• Investors focus on the long-term growth potential of companies.

• There are two main approaches to investing: fundamental analysis and technical analysis.

• Fundamentalists analyze a company's management, products, financial ratios, and qualitative factors.

• Technical analysts study past price movements to predict future trends, believing that all relevant information is reflected in the price chart.

 Each type of trading requires a different skill set and mindset. Traders should choose the approach that aligns best with their goals, risk tolerance, and level of expertise.

 When it comes to investing, there are two schools of thought:

• Fundamental Analysis and

• Technical Analysis

  

Fundamentalists prioritize aspects such as company management, product diversity, sales, price-to-earnings ratio, balance sheet, cash flow, and debt-to-equity ratio in their analysis. They delve into both qualitative and quantitative aspects of company evaluation.

Technical Analysts, on the other hand, focus on analyzing past price behavior to inform their decisions. They hold the belief that all necessary information is contained within the price chart, making it sufficient for analysis.

Based on technical concepts, we can delineate four distinct forms of trading:

1. Breakout Trading:

• Breakout trading seizes opportunities when a stock price breaches a defined resistance level with heightened volume.

• Traders enter long positions post-breakout, placing stop-loss orders below the resistance.

• They may adjust stop-losses or aim to exit at higher levels for profit.

2. Price Action Trading:

• Price Action Trading entails reading market dynamics and making subjective trading decisions solely based on price movements.

• Traders rely exclusively on price and volume to inform their trading strategies.

3. Swing Trading:

• Swing trading targets price swings within sideways market movements.

• Traders aim to exit positions before market reversals occur, thereby securing profits.

The strategy involves:

1. Identifying range-bound markets or scripts.

2. Observing price action at support and resistance levels.

3. Initiating trades based on price rejections at these levels.

4. Adjusting stop-loss levels as prices move and booking profits strategically.

4. Indicator Trading:

• Indicator trading relies on one or two indicators to formulate trading plans.

• Technical indicators aid novice traders by instilling discipline and guiding decision-making.

For instance, the 'Stochastics' indicator assesses closing prices relative to price ranges over a specific period.

Readings above 80 indicate overbought conditions, while those below 20 signify oversold conditions.

 What are the Different Trading Instruments available to Trade?

We have below 3 trading instruments in the stock market:

1. Equity

2. Futures

3. Options

Let's delve into some case studies to illustrate how different trading instruments work using well-known stocks traded in the US market.

Case Study 1: Equity Trading with Apple Inc. (AAPL)

Assume a trader has $50,000 in their trading account, and the current market price (CMP) of Apple Inc. (AAPL) stock is $175.90 per share. If AAPL's price increases by 5% in the next two trading days:

• With $50,000, the trader can buy approximately 284 shares of AAPL.

• Profit due to the 5% upside movement is $7,045.60 (284 shares * $24.90).

• ROI on capital is approximately 14.09%.

Case Study 2: Futures Trading with NVIDIA Corporation (NVDA)

Let's consider a trader with $100,000 in their trading account who opts to trade futures contracts of NVIDIA Corporation (NVDA). If the price of NVDA increases by 5% in the next two trading days:

• With $100,000, the trader can purchase one futures contract of NVDA, typically representing 100 shares.

• The profit generated from the 5% upside movement amounts to $5,000 (100 shares * $50 per share increase).

• This results in a return on investment (ROI) of 5%.

Case Study 3: Options Trading with Alphabet Inc. (GOOGL)

Assuming a trader allocates $75,000 in their trading account for options trading and decides to buy call options of Alphabet Inc. (GOOGL). If GOOGL's price experiences a 5% upside movement in the next two trading days:

• With $75,000, the trader can purchase call options with a suitable strike price and expiration date.

• Profit due to the 5% upside movement can vary depending on factors such as implied volatility and time decay.

• Assuming a profit of $30,000 (estimated based on implied volatility at 40% and other factors).

• ROI on capital is 40%.

In these case studies, we observe how different trading instruments (equities, futures, and options) offer varying degrees of risk and reward. While equities provide moderate returns with lower risk, futures and options trading can yield higher returns but carry greater risks. It's essential for traders to understand these dynamics and tailor their strategies accordingly, considering their risk tolerance and investment objectives.

10-Steps to Elevate your Trading Skills

1. Read a few good books on the stock market.

2. The first time, read in general (to understand the concepts)

3. Next time, read and try to locate the information on charts

4. Get an idea of what type of trading suits your personality, whether it's intraday, positional trading, swing trading, or price action trading.

5. Suppose say you started liking price action trading. Then study in-depth about price action trading. Read good books on price action trading, look for any good online course on price action trading, follow successful traders, and take advice from them.

6. Once you get a fair idea of price action trading, then finalize one trading system. A trading system should have entry price, stop-loss price, and profit booking price.

7. Once you have a trading system, check the system with past data. If it offers a minimum of 50% accuracy and 1:2 risk-reward, it is an excellent system.

8. Then start taking trades based on your trading system. But ensure not to risk more than 1-2% of your trading capital on any trade.

9. In this process, you will commit some mistakes. It would help if you study your mistakes as it has a lesson.

10. Next, avoid making past mistakes in trading.

Trading is like any other skill which demands persistence effort, focus, and dedication. Mastering the art of trading is a journey filled with learning, growth, and the occasional stumble. But fear not, for with the right mindset and approach, anyone, regardless of age or background, can elevate their trading skills and achieve success in the stock market.

Start by immersing yourself in knowledge and understanding the fundamentals of the stock market through reading insightful books. Then, delve deeper into specific trading strategies that resonate with your personality and preferences, whether it's intraday, positional, swing, or price action trading.

As you hone in on your preferred trading style, craft a solid trading system with clear entry, stop-loss, and profit-taking rules. Test your system rigorously with historical data to ensure its reliability and effectiveness.

With your system in place, begin trading with discipline and caution, never risking more than 1-2% of your capital on any single trade. Embrace the inevitable mistakes as valuable learning opportunities, and continuously refine your approach to avoid repeating them in the future.

Remember, trading is a skill that requires dedication, persistence, and continuous effort. Stay focused, stay disciplined, and stay committed to your journey towards trading mastery.

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