There has been a lot of interest in equity markets, with the world markets reaching stratospheric heights. Since the Covid-19 epidemic, the Sensex 30 and the Nifty 50 have increased by 134% and 144% from the March lows to their highest peaks. Most of us aspire to be successful traders in the equity markets, yet not all succeed. So what are the essential skills to become a successful trader?
5 essential skills to become a successful trader
1. Analytical Skill
Before buying and selling stocks, you have to analyse financial data and price trends and patterns. Such analysis helps you to predict future price movements. For this, you need not only financial and accounting skills, but also math skills. The ability to analyse data and arrive at conclusions about the predictive behaviour of past share price movements is essential.
It helps you forecast future price movements. It enables you to out think the market and earn trading profits. Having a math background and research skills, and a financial background helps.
2. Research Skill
Market sentiments drive market direction. Typically, there is a lot of background noise in the market. Your ability to research and cull out the critical facts amid the noise that affects the share prices will mean the difference between you making a profit or a loss. This will determine your success in the market.
You have to analyse the intra-firm and inter-firm comparisons in financial performance key ratios of performance. You also have to factor in the impact of industry-wide, economy-wide factors, market fluctuations, geopolitical developments and interest rate movements. Lack of knowledge and inaccurate information directly translate into financial losses. At all times, be aware of the price trend factors in play by researching the price movement charts.
Equity Markets are fast-moving and chaotic. In a blink of an eye, millions of rupees are lost. It would help if you had an utmost concentration on the factors at play on your particular stock price. When you see your stock price collapsing and that you are incurring a loss, you may become emotional and make the wrong decision which will convert a notional loss to an actual loss.
It would help if you were always focused and were not subject to emotional decisions. It would help if you never forgot that marketplaces are a financial battlefield, and 90% of the traders don’t make money. As emotions play a spoiler, to be a consistently good trader, manage your emotions and concentration. If you are disciplined and patient, you will succeed in your efforts.
4. Manage your risk
Always maintain stop losses as a means to curtail and minimise your losses. Stop-loss limits for your orders can be set according to your risk tolerance. Fast-moving markets can result in adverse price movements. Since stock prices change every moment, it is better to set stop losses along with your buy orders. This way, you are not caught unawares.
For example, tomorrow, if equity markets turn tremendously bearish with the unexpected news and if you had an open, unprotected buy position in any security, the steep fall in the security’s price would result in a tremendous loss of your capital. In this case, a stop-loss limit order would have curtailed your losses.
5. Set profit goals
One of the most essential skills to become a successful trader is to set your profit goals. Stock prices do not trend upwards in a straight line. Most stock prices have a zig-zag pattern during a trading day. Of course, there are exceptions; stocks that go up without a break to hit the circuit limit. So it is better to have your profit goals in place. You should set these goals before the start of trading. Otherwise, a trade position in profit can suddenly go into loss with the downturn in price, and your notional profit will turn into a loss.
Remember, you can never catch either the peak or the trough of a share’s price. A thumb rule to remember is to sell your holdings when the market greed is at a high and buy shares when the market is fearful, i.e., when the whole market is selling shares. Also, make sure you maintain proper accounting records of your performance and consistently track your profits and losses.
Although, trading somewhat looks difficult, it can be a viable way to earn a profit. If you are wondering how to become a successful trader, you have to understand that online stock trading is both, hard and smart work, and traders who have the patience and discipline to follow these 5 essential skills can increase their chances of success in a very competitive situation.
Happy Trading 📈
Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.