Published on: December 15, 2023
New to the stock market? You are not alone. Since the pandemic, the Indian financial markets have seen a surge in the number of market participants that continues to rise still.
But not every trader is well-versed in finance, and it can be hard to determine the right way to trade.
Thankfully, we have you covered.
In this article, we will discover the various ways market participants trade, their pros and cons. Be with us till the end, and we will tell you the way that will help you become a better trader in the long run.
- RANDOM OR JUDGEMENT-BASED TRADING:
This approach to trading involves executing trades based on one’s own judgment and impulse without a predefined trading plan. Such traders do not account for any degree of predictability in the movement of stock prices – meaning to them the stock prices’ movements are random. Some traders use historical prices to forecast the future price movement, but the trading style in itself is futile.
Novice investors often opt for judgement-based trading, buying random stocks instead of making their decisions after ample research, study and analysis. Since the trading is random, you may or may not benefit from your trades.
We would suggest that you do not fall for impulsive decisions & suppositions, but rather facts. Refrain from taking impulsive trades and base your trading decisions purely on your analysis and research.
- NEWS AND HEARSAY:
Staying updated on the current news is crucial to successful trading. Traders always keep an eye out for economic headlines, geopolitical tensions and significant announcements that can impact market movements and influence the price of various financial instruments.
Seasoned traders utilize the power of news along with their analysis to better understand how certain news can influence the markets, predict trends and make informed trading decisions.
Some new traders make the mistake of misinterpreting the news, leading to impulsive decisions that can have detrimental outcomes. When you look for information on the news, it is crucial that you perform your own analysis before making any decisions. The quarterly and annual results are one of the common scenario where the traders trade on the numbers declared but the management outcome plays an equal role in the trend of the stock. Here, you can look for insights from trading experts who are often featured on business news channels.
Successful traders leverage news updates as a part of their strategy, while also ensuring a thorough understanding of market dynamics and trends by analysis.
- TIPS AND RECOMMENDATIONS:
From social media to social forums, it is not new to find abundant trading advice everywhere. Even though some of it may be legitimate and rooted in facts and analysis, most tips and recommendations online are non-compliant by SEBI.
If you solely rely on tips and recommendations, the likelihood of losing money on faulty tips is very high. Also, what may work for one trader may not work for another.
Even when you do take tips, maintain a system of triple check with respect to the tips & recommendations you get; always backed by technical & fundamentals.
The best way to use social media is to follow and rely on credible channels on platforms like YouTube, Twitter or Instagram, that offer information based on facts and analysis. You can also follow and keep an eye on channels by trading experts who share significant market-related information.
- STUDIES: TECHNICAL ANALYSIS, FUNDAMENTAL ANALYSIS & QUANTITATIVE ANALYSIS:
This is a reliable method of trading, since it relies on facts, rather than assumptions or intuition.
Technical analysis is a trading technique that traders and investors use to predict future price movements of stocks or other assets. Past price and volume data is analyzed to identify trends and recurring patterns using various technical tools in the charts.
Traders often use indicators and patterns to understand the direction of the security (like stock, index, currency or commodity). You can use a competent technical analysis tool to save time and get accurate results. For new traders and investors, it is advisable to learn technical analysis to better recognize lucrative opportunities and avoid risk.
Fundamental analysis focuses on determining the financial health of a company by analyzing factors like financial statements, industry trends, economic factors, and management capabilities to better understand the company’s potential for long-term growth. From a long-term perspective, investors rely on fundamental analysis tools like Radar to ease your fundamental analysis.
Quantitative trading is an investment approach which uses mathematical and statistical methods to identify opportunities and execute trades. It relies on machine learning algorithms to analyze the market and identify patterns in the stock price movement. Quantitative traders (also known as ‘quants’) prefer this method due to its reliance on data-driven methods.
- ALGO TRADING:
Algorithmic trading, abbreviated as algo-trading, is an automated trading method that uses complex algorithms to execute your orders. The algorithms execute your orders once the predefined parameters are met. The algo trading is used for High Frequency Trades (HFT)
A few years back, algo trading was an opportunity for institutional traders due to its high infra cost but with the evolution, the retailers are entering into this segment with fewer lots as well.
The major advantage of algo trading is to eliminate the emotional element in trading and ensures that trades are executed on an objective criterion, so, you never miss an opportunity. You can choose tools like auto-trade engines for algo-based trading.
- PROCESS-ORIENTED TRADING FOR CONSISTENT SUCCESS:
One of the most reliable ways to trade is process-oriented trading. It focuses on following a systematic trading process, without fixating on the results. This approach involves a step-by-step process from creating a trading plan, risk management, decision-making and execution.
We all know MS Dhoni has been one of the best Indian Cricket Team Captains. During his captaincy, he always focused on the process, and we know the results.
In process-oriented trading, making impulsive decisions during market volatility is a common mistake. The process helps you reduce emotional trading, stay practical and make better trading decisions.
Though this approach may not bring the expected results in the early stage, in the long run this is a steady and safer approach than any other mentioned so far.
A process-oriented approach will help you develop your skills as a trader. This is the best method to opt for, especially for beginners. To aid process-based trading, they can begin by educating themselves about various charting types, strategies, and more through trading books written by experts or educational videos.
As Amitabh Bachan said in the movie Mohabatein – Anushashan, Pratishtha and Parampara are the stumbh of Gurukul, trading is similar to it.
It means discipline in trading, respecting your studies and following a process-oriented approach will lead you to become a better trader.
As a trader, no matter which strategy you opt for, it is crucial for you to perform timely reviews to identify the scope of your improvement, and work on it to become truly successful at trading.
Education also plays a crucial role in this journey, and one should constantly read trading books which will enhance your strategies. You can also rely on tools like the ones we offer in our trading universe to ease your analysis process and enhance your results.
