Different Ways to Earn in the Stock Market

By | May 23, 2024

The two most common ways of earning money are by working for someone (salary) or working for yourself (business). Both require significant time to learn skills, upfront money investment, and efforts to grow wealth.

If you are stuck in a 9-to-5 job then you will not get sufficient time to explore any other activity to generate additional income. Your wealth would be limited to what you can save from your salary.

#1. Intraday Stock Trading

You need to find ‘trending’ stocks, which means stocks that have the possibility to go significantly up or down during the day. Explore the stocks which are under the news due to earnings release, announcements or new business acquisition.

Such stocks are published everyday by finance websites like ET and MoneyControl.

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For example, Glenmark Pharma was a trending stock after the day they announced that they have developed a COVID medicine. The stock went up 30% on the same day.

Disclaimer – This example is just for illustration and not a stock recommendation.

Now you will need to study the price chart of the stock. The above image is an example of a candlestick price chart.

Candlestick charts are the most popular type of price chart. For every stock, the candlestick chart will be available in the trading account app of your broker.

For example, in Zerodha you can open the candlestick chart for any stock by clicking on the chart arrow symbol as shown below and the chart will pop up on the right side.

In a candlestick chart, each candle represents the range of prices during a particular time period. The above chart is a 10-min candlestick chart. So every candle represents the range of prices in a 10-min period.

Green Candles represent that the closing price at the end of the time period is higher than the opening price.

Red candles represent that the closing price at the end of the time period is lower than the opening price.

Let’s say you open a 10-min candlestick chart of a stock at 9.30 a.m. when the price is Rs. 230. If the price goes up and ends up at Rs. 231 at 9.40 a.m., the candle formed will be a green candle.

In the adjacent image, Point A to B of the red and green candles represents the wick of the candle. The wick of the candle denotes the range of prices at which the stock has traded in that time duration.

The highlighted portion (green or red) is the body of the candle which denotes the opening and closing price. So, the lower end of the body is the closing price in a red candle and the upper end of the body is the opening price.

Similarly, the lower end of the candle body is the opening price in a green candle and the upper end of the body is the closing price.

After reading the charts, you have to form a view about the stock you are planning to trade.

For example, ITC acquired Sunrise Food business at Rs. 2150 crore and I have formed a view that the stock would go up but that did not move much.

Expert Tip: Every stock would not go up on the news of an acquisition. In the past, SBI stock tanked when they acquired a stake in Yes Bank.

Depending on your view, you will buy or sell the stock that you want to trade. You will ‘buy’ the stock if you expect a stock to go up by Rs. 3 from the current price, and sell it when it increases by Rs. 3.

You need to remember that for intraday trading, you will have to exit the position within the same day.  So, even if your view does not turn out to be correct and your trade is in loss, you will have to exit your trade by the end of the trading day.

#2. Futures & Options

There are certain stocks which are in the Futures & Options segment of the NSE. For the stocks in the F&O segment, there are two more instruments available to trade – Futures & Options.

The value of futures & options fluctuates as per the underlying share price. So, the price of Reliance futures depends on the Reliance share price, the price of ICICI futures depends on ICICI share price and so on.

Futures & Options have an expiry date and minimum ‘lot size’. For example, if you want to buy Reliance futures, you will have the option to buy Reliance Futures of different expiry months.

Reliance futures has the lot size is 505 shares. So, if you buy Reliance futures and the price goes up by Rs. 1, you will make Rs. 505.

Let’s say you expect Reliance to go up by Rs. 20 in the month of August.  In this case, you can buy Reliance futures for the August expiry. If the price increases by Rs. 20 within August, you will make 505*20 = INR 10,100.

However, if the price does not go up as expected, you will still have to exit the futures position by the last Thursday of August. (Futures expire on last Thursday of expiry month)

I would suggest that you trade futures with caution because the capital that you will require for futures trading will be at least Rs. 2 lakhs. Also, because there is a minimum ‘lot size’ for every future, you will make a heavy loss if your view is wrong.

However, you can try options trading as you can trade with as little as Rs 5000. Options trading has the possibility of earning exponential returns within a day with very little investment.

There are two types of options- calls (Bullish) and puts (Bearish).

Think of options as buying a bet – let’s say if ICICI is trading at INR 350 on 2nd August and you expect it to go up during the day. You can buy a call option for ICICI for the August expiry.

You will have to pay a price for buying the option and there is a minimum lot size like futures. If the option is trading at Rs. 5 and lot size is 1375, you will have to pay 1375*5 for buying the option.

If your view turns out to be correct and the stock price increases, the option price will also increase and you can exit the option and make a profit.

If you want to trade options, you will have to study more about options in detail. If you do not want to spend time studying options, I would suggest that you avoid it and start with only trading stocks.

#3. Swing Trading

Swing Trading is to enter a trade with the intention of holding it for a few days. You will not be able to see an Rs. 1000 profit with swing trading daily, but if your trade is right, you may earn your target profit after a few days.

For example, the government declares privatization of BPCL and the bidding deadline is 31st August. Now, one may form a view that the stock will go up anytime before the deadline, and buy 500 units of BPCL on 5th August.

If this view turns out to be right, you may achieve your target profit any time before the deadline date.

Swing trading will also require significantly more capital than intraday trading, as you will have to buy and hold shares or buy futures. For swing trading of options, the capital required will be much lower.

10 Trading Tips to Become a Successful Stock Trader

I know you have not understood everything about trading so far.

I will try my best to explain through different examples but before that, I want to make sure that you don’t repeat the mistakes that I made when I started my trading.

Printout these 10 rules of trading and promise me that you never break these rules

  1. Never trade with borrowed money
  2. Don’t put your money into a trading account that you may need in the next few months
  3. It’s better to make less money than losing big money in a single shot (don’t be greedy)
  4. Trading is like a battleground, you can win only if you stay alive. Don’t lose all your money in the first month itself.
  5. Don’t follow the buy/sell tips rather learn to make your own trading strategy
  6. Do not use your entire margin in one single trade. Try not to use more than 50% of your margin for one trade.
  7. Do not trade against the trend. Do not short a stock which is going up or buy a stock which is going down
  8. Do not overtrade. If you have achieved your target profit for the day, stop trading for the day
  9. If you make a loss on a trade, take a break for some time. The loss will affect your judgment and you might end up making more losses.
  10. If you start losing your sleep over your trades, you are doing something wrong. Take a step back and reflect.

The summary is that do not trade based on ‘hope’. Trade only on data and technicals.

My friends told me that trading is gambling. 

It is!

Only when you don’t understand the technical analysis of stocks and buy random trades purely based on hope.

There is no technical analysis in Gambling, you bet based on your luck.

It’s your choice if you want to trade by following the principles of Gambling or learn the stock analysis before investing.

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