The whole world is getting affected by the coronavirus (COVID-19). Currently, 966000 people are affected and almost 50000 people are dead globally because of COVID-19. Italy and Spain are in very bad shape. In India also, there are 2074 people affected and 69 people are dead. In this critical situation, it becomes everyone’s duty to take care of self and family and to stay inside.
The market has corrected almost 33 percent from the top in just 3 months. Every crash is an opportunity to invest in the market.
Let’s look at the earlier market crashes.
- In the year 1992, the market went down by 54 percent in a year and moved up by 127 percent in 1.5 years.
- In the year 1996, the market went down by 40 percent in four years and moved up by 115 percent in one year.
- In the year 2000, the market went down by 56 percent in 1.5 years and moved up by 138 percent in 2.5 years.
- In the year 2008, the market went down by 61 percent in one year and moved up by 157 percent in 1.5 years.
- In the year 2010, the market went down by 28 percent in one year and moved up by 96 percent in 3 years.
- Now, in the year 2020, the market went down by 30 percent in 3 months
Many people are asking me, is it a good time for investment? Before answering this question, we need to first understand that does the market bottom out or not? I cannot teach you all about the stock market in just two hours session. But I can provide you a holistic view of the market for the next two hours session.
Let us talk about the choices we have for investments. We have fixed deposits, mutual funds, stocks, real estate, bullion, and cash options for investments. Which one of these is the riskiest out of stocks or FD? Let us understand this with an example.
Let us assume, you have one lack amount in the bank, and you put this money in the FD with a 6 percent interest rate. On maturity, you will get one lack, six thousand in your bank account.
On year to year basis, average inflation is 6 percent per year.
Even though you got a return of 6 percent in one year, but this return will not beat the inflation. The net growth of your capital is zero. In short, you are in no profit at all.
Real estate was a good option at an earlier time. As it is a cash-driven asset and a lot of regulations are coming in, it is not as good as was in the past. If FD rates are coming down by 3-4 percent, Real estate prices will fall 20 percent more than the FD rates.
Gold is a good option, but it gives only 4-5 percent a year return.
Cash is not even a safe option and it does not give any return. Moreover, it cannot beat inflation.
The stock market is the only option if you want to grow your money. Unfortunately, the stock market is not for everyone. It is only for those who are willing to learn and grow their money.
Let us talk about expectations. When you are entering the stock market, what is the expected return per month, you should be thinking of. I would say, from portfolio building, you should expect two percent per month. So, in one year, it will be 24 percent. I assume 4 percent will be eaten up by the inflation.net, you will get approximately 20 percent per year. The money that we will get for portfolio building is coming from intraday and swing trading. So, in intraday and swing trading, we should be expecting 10 percent per month.
You have to grow your money at a net rate of 20 percent per year and the tool we need to learn to achieve this is the stock market. The stock market is the tool that can help your money grow at a rate of 20 percent per year.
Let us understand this using one example. You have 100 stocks of the Reliance industry and the Reliance is growing at a rate of 10 percent per year. Would your portfolio grow at 24 percent per year? If you want your portfolio to grow at 24 percent per year, you need to invest in such stocks which are growing at 24 percent per year. This is the only reason most people money doesn’t grow at the required rate and they complain at the end that even if they have invested in blue-chip companies but they are not getting a good return.
Now, let us talk about what needs to be learned in the stock market. In the stock market, we have two friends: one is the technical analysis and the second is the fundamental analysis.
Fundamental analysis helps us to show the broader picture of stock and to make the right decision while selecting a stock for a long-term perspective. When we know fundamental analysis, we make decisions based on what we see, not emotionally.
Technical analysis helps us to read charts. Charts are the pictorial representation of math. You will see red and green color candles. All candles in this chart have some meaning. These candles tell you when the stock will move up or move down. This also tells us when the market is expensive or when it is cheap. Sometimes, a good fundamental company goes down, and why does that happen? The answer to this question will be known if we know technical analysis.
Let us understand who controls the market.
In the broader picture, we have mutual funds, insurance companies, banks, corporates, big brokers and FII are the big players who control the market.
This raises another question: What do they do?
They do intraday trading, swing trading, positional trading, and portfolio building. To all this, they do trade in stocks, futures, and options.
Same as stock market friends you have, you also have enemies in the market.
The major enemies in the stock market are
- Lack of Skill
- Emotions
- Dependency on others
Let us understand our risk. A few of our risk in the market are list below.
- Have no control over the market
- Opponent is invisible
- Not know the skill level of the opponent
- Unknown risk such as war, coronavirus, elections, results
Now let us understand the real challenge: what do you have to learn and master? You only need to learn and master is the price because the price gives you profits. We need to learn how the price works.
If we plot a 200 MA average on a daily chart on any stock. It shows the system of imbalanced to a balanced price range. When the price moves away from the 200 MA line, it becomes imbalanced and, when it is near the 200 MA line, it is in the state of balanced. Great opportunities come to make money when the price is imbalanced.
Let’s understand the critical components of trading.
- High probability trading techniques
- Trading plan for the aligned personality
- Rational decision-making training
- Money management and trade management
- Controlling emotions and subconscious mind
In short, I would say, you have to learn how to
- Build and manage your portfolio
- Make money with intraday trading
- Catch market swings with swing trading
- Trade leveraged assets and make money when the price goes down
In the end, I would say, the following skill sets are required to become a successful trader:
- Stock selection with fundamental analysis
- Chart reading with technical analysis
- Stock filtering to find HP trades
- Risk management methods
- Mastery of online platforms
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