How to generate wealth in stock market Wealth (Build wealth fast) is everyone’s dream, and the desire to make money often brings people to the stock market. When investing in the stock market, you need to be patient if you are going to create wealth in the long run. To invest in the stock market, you also need to understand that it requires skills, subject knowledge, risk-taking abilities, and time.
The following is a quick tutorial to help you understand the basics of investing in the stock market.
Trading Rules
Stock/options trading may be one of the few careers that give you the freedom much desire. You have no boss, no schedule, and you can take a vacation whenever you’d like. Without a system that prevents you from making careless mistakes, this type of freedom can be short-lived. Trading rules are vital to ensuring a trader stays on the right path toward success and to help avoid common mistakes.
Listed below are trading rules I abide by daily to help maximize my ability to execute winning trades and generate more profits. These rules are not meant to be unique or cause a massive shift in your trading style. I am sharing this list to help reinforce how the simplicity of trading rules coupled with a proper psychological mindset can produce consistent results.
1. Treat trading like you would with any other business venture.
Respect your cash and your account size. Like most businesses, you can’t expect to be profitable during the first month of opening if you are new to the industry. Some businesses take years before they become profitable.
Remember to PAY yourself at the end of each week. Some traders try to continuously grow their accounts, but it can backfire if you incur a big loss on any given day. If you look at trading as a means to get rich quickly, you are more likely to fail because of your poor mentality. The more time you invest in learning to improve and learn, the higher chance you have of becoming successful with options trading.
2. Never average down a losing position.
This common habit may work 70-80% of the time, but you will average down too much if you continue this flawed strategy and blow your account one day. Many amateur traders average down and sweat the trade and destroy their mental capital and account. If a position is a winner, it should work with minimal effort.
3. Never have a bias
Do you find yourself holding onto a directional bias when entering a trade? This is a common mindset of many traders and causes them to miss out on massive runs. Always remember to follow price action and not fight it. Having a bias will blind you from seeing what’s in front of you. Don’t try to be “right” all the time. I’d rather be wrong and make 100k by following price action than try to be right and completely miss a trade.
4. Always take profit on the way up.
Are you greedy and try to wait for 100, 200, 300%+ gains? I’ve survived this long with options trading because I systematically take profits (Ex: 30, 50, 75, 100%+), allowing me to let a portion of my original position ride with a minimal amount of emotion.
When you have less emotion and are trading with profits, you will be able to think clearer. This is also why it is important to properly size your positions and not enter trades where you can only afford one option. Remember that small wins add up quickly if you can last longer than 6 months of trading options. In most cases, traders fail within a year because they do not have a system for securing profits.
5. Protect your capital/Manage risk
How much risk are you comfortable with? Most traders are not honest with themselves and buy larger positions than they can afford to lose. Allocate less than 5% of your account per trade to allow yourself a chance to take more trades in the future. It is ok to increase this number.
However, it would be wise to never let this exceed 20% of your account in a full position. One, two, three, or four trades should never have the ability to wipe out your account. I see many traders put in 30, 40, 50% of their accounts in a trade because they feel FOMO and want to see action.
If you feel you have to make the absolute maximum profit in one particular trade, and put in a large percent of your account, then you are entering the trade for the wrong reasons and will likely never see the gains you desire. It’s much easier to let a $500 trade go 1000% than putting in $20k and watching it go to $200k. Learn to trade smaller sizes, and you will see how much easier it will be to manage your positions.
6. Always stay grounded
Every trader needs to learn how to respect their profits. It doesn’t matter if you make $100 or $100,000 in a day. Regardless of the amount of money you earn in a day, it would be helpful if you learned to appreciate it. I see some traders unhappy after they made 6k when they could’ve made 10k.
This is the wrong mentality and can cause you to make irrational and high-risk decisions to make more money. If you make 10K on trade and rolled 4K of profits into another trade that did not pan out, do you believe that you lost 4Kor made 6K? If you believe you lost 4K, you have the wrong mentality. Also, try not to compare your profits to another trader’s profits. Everyone is on a singular journey toward improving themselves. You don’t know what others traders have gone through to get to the level they’re at currently, so there’s no reason ever to compare yourself to another trader.
7. Cash is a position
Many traders are trigger happy every time the market opens and continuously want to enter trades to see action. This type of trader will burn out quickly and end up bleeding their account to zero. Remember that cash is your most important position, and if you combine this with patience, it can allow you the opportunity to maximize your profits once the market shifts in your favor.
8. Cutting losses – Abide by your stop loss.
If a trade doesn’t feel right, why should you hold onto the position? Most traders are unable to cut a loss and allow the trade to control them and their emotions without realizing it. Your approach to every trade needs to be fluid. If one doesn’t work, simply move on and reset. Don’t immediately jump into another trade unless you clearly understand why that trade didn’t work out and have a well-constructed plan for the next. This will allow you to see the next opportunity more clearly without lingering on the previous loss. Losses are a part of trading. It’s important to never let one loss affect your mental and capital ability to take the next trade.
9. Formulate a plan and follow it
Some traders tend to react rather than prepare for possible outcomes. You must follow the plan that you have created. If you can anticipate and visualize the possible outcomes for a trade, this will help prepare you to take the right action. If you see a consistent pattern of having trades go green to red, then you need to reevaluate your strategy. In general, you shouldn’t have a larger percentage of profitable trades that end up being bigger losers. Create a plan, execute your trade, secure the profit, and move on.
7 step guide of investments in Stock Markets-
| Understand the business | Look for long-term investments |
| Liquidity | Diversify your investments |
| Check the financials of the company | Do thorough research before shortlisting the stocks |
| Check the company for competitive advantage | Verify the credibility of management |
Things to watch out for:
| Frequent capital raising in spite of profits | Significant increase in inventory or debtors |
| Zero tax for extended periods | Capex beyond industry comparables |
FAQs:
What is the best way to create wealth in the stock market?
Long-term wealth creation
When investing in the stock market, you should consider investing for a longer period of time. Despite short-term volatility, capital appreciation can be achieved through long-term investments.
Is it possible to become a millionaire on the stock market?
Millionaires in the stock market are more attainable than you might think. You don’t need to be rich to generate wealth in the stock market, but you need to make the right investments.
What can I do to become rich in 10 years?
In 10 years, how to become a Crorepati.
1. Choose a Financial Planner carefully.
2. Spend wisely to increase savings.
3. Focus, discipline, and patience are the keys to success.
4. Choose the right schemes to invest in.
