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What is trading and how to trade during falling stock?

How to trade during falling stock market? : In this article, we will shed light on all the information related to trading like what is trading, what is investment, what are the types of trading, how to do trading when the stock market is falling, all such interesting information which is related to trading will be discussed. The term trading bothers a lot of newcomers to the stock market. There are still some small retailers in the stock market who do not know the difference between trading and investing.

If you also want to get complete information related to trading, then read this article completely and carefully. I am going to explain very closely about trading in this article. If trading is said in simple words, then making profit by exchanging any goods or services. Stock market trading is also similar. In this, we earn profit by buying and selling any item. In the stock market, profit is earned by buying and selling shares of companies instead of the things.


What is Trading?

The exchange of payment for goods or services between any two parties is called trade or trading.We can say that this is the fundamental principle of economic societies and financial activities. Trade can take place between any two countries or between any two entities or between any two companies or between any two persons.

In the stock market, various companies sell some percentage of their shares to the investors and the investors buy their shares and invest money in that company. Investors participate in every profit and loss of the company. Investors sell those shares to another investor with their profits. Buying all this shares is called share market trading.

Trading is said to be quite risky as one does not know what will happen in the stock price after some time. If the news related to the stock is good, then the share price rises. On the other hand, if the news related to the stock is bad, then there may be a slowdown in the share price.

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Difference between Trading and Investment

Often people think that trading and investment are the same thing. But there is a lot of difference between these two words, which is very important to know here. I always try to explain any topic very easily to my readers, so understand the difference between trading and investment through the image given below.

trading and investment

I think if you take/sell shares keeping in mind the time frame (usually short term), then it is trading and not investment. For example, if you buy a home to live in with the intention of selling it, it is an investment. If you take a house and your intention is to sell it when the price of the house increases, then it is called trading.

Countless people have been drawn to the market with the dream of getting rich quickly and achieving financial independence. It is easy to start trading with a demat account hence adds to the attractiveness. The truth though is this: less than 1% of active traders make more money than bank fixed deposits over a period of 3 years. Although this number seems unusually small, in fact, it is similar to the success ratio for typical businesses; The only difference is that the ease of entry entices a large number of people to start trading.

Types of Trading

There are many types of trading, although trading in the stock market is divided into four parts.

1. Scalping Trading
2. Intraday Trading
3. Swing Trading
4. Positional Trading

1. Scalping Trading : Scalping trading is the trade that is to be traded for a few seconds or minutes. This means that traders who buy and sell shares only for a few seconds or minutes. Such traders are called scalpers. Let us tell you that scalping trading is the most risky.

2. Intraday Trading : Intraday Trading a trade that is to be traded for 1 day. That is, those traders who buy shares after the market opens and you have to sell your shares before the stock closes. Such traders are called intraday traders. Let us tell you that intraday trading is slightly less risky than scalping trading.

Traders have to buy and sell shares on the same day. Same day traders book profit or loss early and close their trade before the close of the stock market. In this, you get only one day's time, you can hold the stock as many times as you want throughout the day. Share price in intraday trading is not constant and requires fast decision making. That's why the new people to the stock market and inexperienced people are made to take part in intraday trading.

3. Swing Trading : Swing trading is trading that buys and sells shares for a certain number of days. This means traders who buy shares for a couple of weeks then sell. In this, the trader does not need to look at the charts throughout the day. It is better for those people (jobs, students etc) who cannot spend their whole day in trading.

In this type of trading, traders keep their shares for a day or more than a day for the price of their shares to rise. Traders wait till the price of their shares rises and when they make profit, they sell their shares. This type of trading is done by people who are in jobs or students, who have lack of time.

4. Positional Trading : In this type of trading, investors hold the stock for a longer period to get higher returns. Shares are held for a period ranging from a few months to years. Investors anticipate price movements by various technical and fundamental analysis and buy shares accordingly. 

In this trading the shares are kept for a few months. This is done to capture the long term movement of the market so as to make good profits. The daily fluctuations of the stock market do not affect them much. Expert says that it is very less risky than all other trading.

Generally all long term investors who invest in a developing company ignore the short term fluctuations of the share price. This type of trading is also called fundamental trading. There is always profit in long term trading. That's why fundamental traders invest only for a long period of time.

How To Learn Trading?

My friend, I don't know in which part of the world you are reading this article, but my advice is that before starting any work, you should assess whether these two things are inside you or not?

First of all are you fully interested in the work you are going to do or not? How much love and affection do you have for that work? Secondly, whether you have complete knowledge about that work or not. Before starting any work, it is very important to have deep knowledge about it.

It shouldn't be like "everybody was laughing that's why I'm laughing too". Before trading you have to get complete information about trading. Then you have to take help from an experienced person, then you can start trading independently.

There are many ways to learn trading, we have listed some of the best ways to learn stock market trading One of the cheapest ways to learn about stock market trading is to read a book. You can read any best selling book to get a deeper understanding of how the stock market works.

Seminars, trading training courses, online courses, and live classes are some of the best ways to learn about stock trading. There are many blog pages and popular trading websites, where you can read articles regularly. This is a great way to learn about trading in the stock market at no extra cost.

You need to find an advisor to learn the workings of stock trading. The trading advisor will help provide you details resources about the current status and skills for stock trading. Knowing about success stories from investors can motivate beginners to get into the market. Every story of a successful trader contains some great lessons about trading.

Some special tips about trading

Fixing money and time limits : Just as not everyone can be successful in sports, music or business, not everyone can profit from business in the long run. Stock market is like a deep ocean where if you are not good at trading then you can lose unlimited amount of money. If you are a new trader then define stop loss and set loss limit - an amount you can lose and a time period for which you will wait to make profit.

Put a stop loss on every trade : There are Two fundamental rules when trading: (1) If you don't bet, you can't win. (2) If you lose your all trading money, you can't bet - Larry Height

You must ensure that you do not lose more than 1% of your trading capital on any one trade. The bigger your trade loss, the more likely you are to act irrationally during or after trading, which can ruin your trading career.

And for those who buy calls or puts, it is possible to place a 1% stop only if your option buy trades do not exceed 2% to 3% of your trading capital. You should Remember in trading tricks that buying options without a hedge is almost like buying a lottery ticket. If you had a million dollars, how much would you spend on buying a lottery ticket?

Stay with the trend : In trading, what is convenient is rarely profitable. — Robert Arnotti. We all are attracted in trading to buy those shares whose price has fallen, and try to sell the shares which have become expensive. But this strategy is good when investing for the long term, it can also be profitable when you trade in the short term. The probability of the stock prices being trending, i.e. to be up and down in a certain direction for a long period of time. If you are going Against the Trend - means Buying a falling stock, or selling one that is rising, expert says that it is a bad trading strategy.

Often people's strategy is to buy stocks that are at their 52-week low. A common thinking is that stocks that have fallen will definitely bounce back.Expert says that it is one of the worst trading strategies. Whenever there is a discount sale of something, we are all ready to buy. But there is a different strategy to be followed in trading, one should buy when the stock is going up and sell the one which is going down.

Do not invest more money in loss trades: When you buy a stock at 100 and buy more when the price of that stock falls, like at 90, something else at 85, etc.; Hope the bounce will help in recovering the loss faster. Unfortunately, this type of expectation is not a trading strategy. Stock prices tend to trend (up or down for the long term), and buying above average may work a couple of times, but it is usually a money-losing strategy in the long run. By buying more of a falling stock, you try to correct a trading mistake that could have been avoided by having a stop loss. Worse yet, short traders usually sell stocks where they are averaging out a stock to make a profit (also known as the disposition effect).

At least when you average more than the stock, you can give it bounce time. But when you buy stock or index options that have a limited expiration time, this averaging strategy is a sure recipe for disaster. In order to trade, the winners must be caught, I would also like to say that averaging is the biggest money loser for small traders.

Leverage is a weapon of mass destruction : Leverage (in futures and options) means doing trade with more money than you have. It is very dangerous in the hands of that person who don't know how to handle it well. While this may lead you to believe that you can make a substantial profit quickly if you do it correctly, if you leverage too much, you can end up in the same bad trade.

If you talk to an active trader who has stopped trading, most likely they traded with too much leverage. If you decide to use leverage, be sure to use it sparingly and only if you are really confident about trading. Still, make sure you place a stop loss.

Using Fundamental Analysis with Technical : It is also a strategy in trading to buy on rumours, sell on news. Some beginner traders begin their trading journey by learning fundamental analysis, with the Price to Earnings (P-E) Ratio. Fundamental analysis is a one of the best way to invest for the long term, it is not much suitable for short term trading. For example, stocks with a low P-E may maintain that low P-E and remain low for an extended period of time while the stock price continues to decline. If you want to use fundamentals, it is best to mix it with some technical analysis (T-A).

T-A is based on the fact that market sentiment reflects everything. Anyone don't wait for news to buy, often we trading when prices go up (rumour) and sell when it goes down (usually when news happens). Infact most T-A strategies do not allow you trade against the trend. So if you decided to buy a stock with a low P-E adding to the T-A, you would buy it only when the stock price went up. For example, if the price is above the 50-day moving average (a simple T-A strategy) - a trading strategy is more likely to win than simply buying a stock because its P-E is lower.

Trading stocks without knowing what a stock is not a good strategy. Penny stocks (companies with a market cap of less than Rs 100 crore and mostly where there is no real business) are also money-makers. These stocks are usually manipulated and have a tendency to go up sharply and then go down sharply without giving you a chance to exit. If your trading is based on fundamental analysis strategy, you can avoid such stocks.

Avoid Stock Tips : Always start from the zero point, think of all possible and be prepared before trading. Professional traders have an exit strategy before each trade.  While there are many "advisors" who claim they can give you stock tips that will generate high returns or make you quick money, they rarely end up with such easy money. When trading on a tip, you will not know the reason to enter, and therefore will not know when to exit, which is the most important part of trading.

Most of us are also terrible at using advice, which means that even if you somehow find a mentor who makes good suggestions, you still can't follow through. Either way, it usually only creates difficulties. Also trading on TIPS is done almost spoon-fed, your learning curve and development as a trader stall. More importantly, there are heaps of unsolicited stock tips and SMS "pump and dump" scams on social media. These scammers inflate the price of the stock by creating hype through tactics, only to dump those large blocks and make a profit at the expense of the traders who fall prey to it.

Don't depend on one tool : If you are building an active trading portfolio of stocks, ensure that no more than 10% of your trading capital is in any one stock. Ensure that no more than 25% of the portfolio is in any one sector. However, diversification can reduce both the returns and the risk. As a beginner trader, the most important thing is to minimize risk in the first few years. Think of it like this way: before you go to find a job you have to go through education of few years . Similarly, you need to give yourself time and opportunities to learn and grow as a trader. But you can get that time only if you stop trading for a long time, and this is possible only if you reduce the risk as much as possible.

Trading Addiction and Trade Sizing : Trading is a kind of addiction, getting addicted to trading is a natural thing. Very easily people get addicted to trading. Some people enter trades simply because they find trading more exciting and more interesting. To become a trader, but not to become this type of trader. Whenever you feel that trading has taken over your life and you have become addicted to trading, take a break. If you are finding it difficult to stop trading completely, reduce your trading size to 1/10 when you know you are just trading habitually.

By the way, this strategy of changing the trade size depending on the position is called "trade sizing". Essentially, don't trade with the same volume all the time - short your trades when you have a drawdown (stop making money) or when you're not sure, and when you're winning consistently and about yourself Be sure to make big bets. Business. By measuring such bets, you increase your chances of winning yourself in trading.

You need to have alternative money in order to maintain the winning expectation in trading. All traders should be confident that I will profit from trading but there should not be such confidence that I will somehow benefit from this trade. In this way, there should be confidence that even if I do not profit from this trade, then it does not make any difference to me.

If doing trading and earning money is difficult, then making a living from business is manifold. Very few succeed under the added pressure of making money from trading. This decision of trading for a living should be taken only if you have sufficient source of income to cover your lifestyle.

Finally, remember that business is not life. Trading is an exciting and very unique way to generate income. If you are not enjoying it or are constantly losing money, then stop it. Remember don't let your bad trading and frequent money losing trading affect your life.

Trading during falling stock

These days the stock market is continuously falling. There is also a strong falling in the stock market every day. Many investors have lost millions. But in this also there will be some smart investors, who will have made money. Yes, investors who are very smart also make money from falling markets. Well, there is nothing surprising in this, because there is such a way of trading in the stock market, by which money can be earned even in the falling stock market. This is called short selling.

Earn money from short selling

Just as in the stock market people buy shares at cheap price and sell them at expensive price and earn profit, similarly in the stock market, people earn profit by selling shares at expensive price and then selling them at cheap price. There can also be profits. It is also a smart way of trading in the stock market. Often this method of trading is that shares are sold when the price is high and they are bought when the price falls.

Suppose today the share price of a company is close to $ 200 in the stock market. The share price increases to $ 250, but you know that today the market is more likely to fall, then you can sell the shares at the price of 250. After this, suppose by the end of the evening the price of the share comes to $ 230, then you can buy this share for 230. In this way you will have a profit of 20 dollars per share.

For those who don't know about short selling, their first question is how to sell a stock until we have bought it. Generally, in the process of buying and selling, first thing is bought, only then it can be sold. But trading in the stock market has this special feature that you can sell the same stock first and buy it later.

However, when you are selling shares, the price of those shares will be deducted from your trading account. In this trading, you either buy the shares first or sell the shares first, in both the conditions money will have to be paid. After selling the shares you get the margin benefit from buying the shares, which is $20 in the above example.

Investors have made big money from short selling

Be it a successful trader or a smart trader, everyone must have made money from short selling at some point or the other. The veterans of the stock market get an idea of ​​when there can be a huge fall in the stock market.

To earn money from the stock market, you must also be a visionary, which we call Six Sense. I would only suggest that only those people who have full knowledge and full interest about trading and have six senses should do trading. 

Your interest should not be such that that man is earning a lot of money from trading, now I also start trading. It should also not happen that you have worked as an electrician and plumbing for most part of your life and suddenly started trading, such people cannot get anything except loss. It is possible that by mistake some profit may be made in trading but such people can never become a good trader. You know your potential very well, you should do what you can.

Last Word

Short selling is the only way to earn money from falling stock market, if you are very smart trader then you can earn money from short selling very easily. If you are a normal trader then you cannot make money from such falling stocks. Almost all types of information and tips have been given to you about trading, how did you like this article, tell me by commenting. Trading can make you very wealthy, it can also make you very poor, so whatever you do, do it very carefully.

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