Take Equity Trading Tips With a Pinch of Salt04 June 2020

Every single morning, Mr Ramesh starts his day with the usual exercise, breakfast and newspaper before running to his office. On a Sunday evening he receives an equity trading tip in the form of Web Message to buy XYZ stock. Next morning, he trades on the tip through his online equity trading account with one of the flat fee brokers with an expectation of a quick buck. The same story continues for some time and by the end of month he books significant losses and as a result, he decides not to look back at the stock market again.

Unfortunately, this story is common for the stock market investors and traders in India. Infamous and unethical in nature,this business is widespread in various parts of the world, hunting on savings of lakhs of naïve market participants.But the fault is not only of the broker or advisors who give such equity trading tips. Instead, it is the lack of adequate financial and technical knowledge of investors and traders who enter into the stock markets in expectations of unrealistic profits. While investing, one needs to follow certain stop losses and review the investments periodically.

We spend almost 15 years to complete basic education and more than 3-5 years for bachelors and professional education to end up getting an adequate white collar job with a decent salary. And at the same time we do a little or no research and spare no time to learn about “what and why” of instruments in which we invest our hard earned money.

Equity stock markets have two types of participants generally: Trader and Investor.

Trading and Investing are fundamentally different sides of equity markets; involving different parameters and logic.Trading is objective in nature while investing is subjective.

Investing is related to fundamental aspects of business and industry in which the company operates and its valuation while trading technical analysis of the stock price and trade volume historical chart. There are multiple tools and equity trading strategies that can be used or applied:

  • EMA crossover

  • Breakouts

  • Chart patterns, etc.

To pursue trading/investing, one needs to clear out some basic points first. Namely:

  1. Setting your return expectations;

  2. Goal/Purpose behind making an investment;

  3. Acceptable risk: volatility that you can bare and stay invested without booking losses;

  4. Knowledge about the investment instrument;

  5. Strategy: One can’t hit the blind arrows all the time. You need properly defined strategy to invest;

  6. Time Horizon of investment;

  7. Discipline: The psychology plays the 90% role in the success of the investor/trader. Proper mind-set and ability to avert bias is a must to earn returns.

Investing in Equities is subject to market risk. One should not think of it as a short-cut to overnight success. It is advisable to do your own research before following any share market equity tips. Don’t think these stock trading tips as Tap to Wealth; it could very well be Trap too.

One should always remember “Losing opportunity is better than losing money. And missing opportunity is better than losing money”. For the individual traders it is important to question their decision to trust such tips blindly. There are experienced professionals and advisors who provide such services. It is always necessary to do proper homework before making any investments.