‘’Don’t work for money, make it work for you’’ – Robert Kiyosaki
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.
If you want to start a business then your investment would be at a huge risk in case your business fails (like I lost Rs. 15,00,000 in my first business).
I love the third way to grow wealth, that is investing money in someone else’s business – through investing in the stock market.
Making money from stock markets requires just a few things
- Initial investment (can be as little as Rs. 10,000)
- An internet connection
- A trading account
- The right investment knowledge.
If you have these things, the money-making opportunities can be limitless.
To start stock trading, you will need to open a trading account with a broker. I would recommend that you open your account with a discount-broker (like Zerodha or Upstox ) as their brokerage charges are very low.
Once you open an account, you will get your account credentials from the broker which you can use to log in on their desktop or mobile app.
You will need to add funds in your trading account – that’s called ‘margin money’. You can buy stocks worth Rs. 50,000 with your Rs. 10,000 ‘margin money’ if your stockbroker is providing you 5x leverage (read more about leverage in the next section).
Capital Requirement to Earn daily 1000 from stock market
The more capital you invest, the easier it will be to make Rs. 1000 daily. Ideally, you should start with a capital of Rs. 50,000 for this return. It is possible to start with less margin money but then you will need to devote more time to get winning trades.
Let’s try to understand with an example –
For intraday trading, the broker will give you ‘leverage’. Leverage means that you can trade for a higher value than the money that you have in your trading account. A broker will give different leverage for different stocks.
Now, assume you have a capital of Rs. 20,000 and you decide to trade ICICI Bank stock intraday. If the leverage provided by the broker for this stock is 5x, you will be able to buy shares worth of 20,000 * 5 = Rs. 1,00,000.
If the stock is trading at Rs. 250, you will be able to buy 400 shares (equal to Rs. 1,00,000) even if you have only Rs. 20,000 in your trading account.
If the stock moves up by Rs. 5 then you can sell your 400 shares at a total value of 1,02,000 (400*255). You will make a profit of Rs. 2,000 within a single day with your investment of Rs. 20,000.
However, if you had traded with INR 50,000 you would be able to buy 50000*5/250= 1000 shares. In this case, even a 2 rupees movement in the stock will be enough to earn a net profit of Rs. 2000. In case the stock moves up Rs. 5 then you would end up making a profit of Rs. 5000.
That’s the benefit of starting with little more margin money so that you can capture more profit even when the stock moves up little.
You will need to spend at least one hour to plan your trades daily, which will involve
- Picking the right stock
- Studying the chart
- Identifying the entry/exit levels
- Deciding on your strategy
Once you enter a trade, you won’t necessarily have to monitor your trades throughout trading hours if you strictly follow your trading plan and just enter your target and stop-loss orders.
I will explain the whole process with real examples throughout this article.
If you pick the right stock and execute the right strategy then you can make profits even when the stock is going down. (That’s called shorting stocks, details later)
Different Ways to Earn in the Stock Market in India
#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.
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.
Note: I will write an ultimate guide to read candlestick charts and publish by Sept. 2020
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 can trade in equities, commodities, forex, cryptocurrencies by following the same basic principles of trading.
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.
Upcoming Article: I am writing a detailed article on how to start options trading with Sensibull.
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
- Never trade with borrowed money
- Don’t put your money into a trading account that you may need in the next few months
- It’s better to make less money than losing big money in a single shot (don’t be greedy)
- Trading is like a battleground, you can win only if you stay alive. Don’t lose all your money in the first month itself.
- Don’t follow the buy/sell tips rather learn to make your own trading strategy
- Do not use your entire margin in one single trade. Try not to use more than 50% of your margin for one trade.
- Do not trade against the trend. Do not short a stock which is going up or buy a stock which is going down
- Do not overtrade. If you have achieved your target profit for the day, stop trading for the day
- 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.
- 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.
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 Gamling or learn the stock analysis before investing.
7 Steps to Start Stock Trading Like a Pro (With Real-Life Examples)
You can start earning Rs 1000 per day from stock market after understanding and following these 7 steps.
Step 1 – Open a Trading Account and Transfer Funds
When you open a trading account, you will be asked for your bank account details that will be linked to the trading account. You will be able to add funds in your trading account only from the bank account that you have linked.
Adding funds is a straight-forward process. You just need to go to the ‘Fund’ section in your trading app and click “Add funds”.
Once you specify the amount you want to transfer, you will be redirected to the net banking page of your bank account.
Once you login, you will be able to approve the fund transfer. The funds transferred will appear in your trading account within a few minutes.
If you don’t have trading account, I would recommend you to open account with Zerodha
Step 2 – Pick Trending Stocks From Finance Websites/apps
Follow a good finance website/app for market-related news (ET, Moneycontrol) and for picking ‘trending’ stocks.
Every morning, before market hours, these websites post ‘Hot stocks’ or ‘Stocks in the News’ for the day.
These stocks are stocks which are expected to move during the day due to any kind of announcement, business acquisition, earning release, or any other news.
I will now explain one of my trades on 14th August, 2020 for illustration.
There are at least 10-15 stocks in the news every single day. It is not possible to trade each and every stock.
You have to pick 3-5 stocks every day, considering the news impact. If the news is big, the stock will also move more, giving the opportunity to make a profit.
I referred to MoneyControl for picking stocks.
Expert Tip: Make sure that you choose ‘liquid’ stocks. Liquid stocks are stocks that are traded in heavy volumes in the market. If the volume is low, that means there are not enough buyers or sellers for the stock and it may be difficult to enter/exit such stocks.
You can find the volume traded of every stock in your trading app.
You can stick to stocks in the following indices as these are liquid
- Nifty 200
- Nifty Midcap 100
- Nifty Smallcap 100
Step 3 – Select 3 ‘Trending’ Stocks for Trading
You will have to use your judgment to estimate which stock has the highest probability of moving as per the news.
Now, I had to choose 3 trending stocks from the list of ‘Stocks in the news’ provided by MoneyControl.
- City Union Bank: Q1 profit at Rs. 154.3 crores versus Rs. 185.6 crore, net interest income (NII) at Rs 437 crore versus Rs 416.8 crore YoY.
- Redington: Q1 profit at Rs. 99 crores versus Rs. 110.2 crore, revenue at Rs. 10,697.1 crores versus Rs. 11,674 crore YoY.
- SpiceJet: July passenger load factor at 70 percent versus 68 percent in June. July market share at 15.7 percent versus 16.8 percent in June.
- InterGlobe Aviation: IndiGo July passenger load factor stood at 60.2 percent versus 60.7 percent in June. July market share at 60.4 percent versus 52.8 percent in June.
- Praj Industries: Q1 loss at Rs. 10.5 crores versus profit of Rs. 8.8 crore, revenue at Rs. 129.5 crores versus Rs 211.6 crore YoY.
- Eicher Motors: Q1 loss at Rs. 55.2 crores versus a profit of Rs. 451.8 crore, revenue at Rs. 818.2 crores versus Rs. 2,381.9 crore YoY.
I picked the following stocks from the list for the below mentioned reasons
- Indigo – Travel-related stocks were going up in that week, after news of Russia developing COVID medicine. So positive news could have pushed up the stock price even more.
- Eicher Motor – Very weak quarterly earnings, could be a good sell opportunity.
- City Union Bank – Very strong quarterly earnings even during COVID times when banks are struggling with NPAs. This should have a positive impact on the stock price.
I did not choose the other stocks because of the following reasons
- SpiceJet – I did not find the news very impactful. Also, I did not want to pick more than 1 stock from the same sector. I already selected Indigo, so skipped this stock.
- Redington – This stock is from the IT industry. IT Stocks have already rallied a lot in the last few days. There is no impressive growth in earnings, so I wasn’t sure about picking this stock.
- Praj Industries – Small cap company, I prefer trading mid-cap or large-cap companies as much as possible.
Step 4 – Read Price Charts of Selected Stocks
Go through the candlestick price chart of the selected stocks to understand how the stock has been performing in the past few days. It will give you an idea about the prevailing trend of the stock.
I read the price charts of all the 3 stocks in my trading app.
As per my observation, City Union Bank was trading in a range in the last few days. It was trading at 52-week low levels.
The last 4-5 candles are red indicating price has fallen in the last week too. Positive news can drive up the stock prices.
Eicher Motors has been rallying since May. It had gone up more than 60% in 2-3 months.
The last candle is a big red candle which probably means the market is already expecting weak performance in quarterly results.
Indigo has gone up 20% in the last two days. It made me doubt whether the stock will go up further on this news.
Expert Tip: Place small bets so that you lose only a small amount of money even if you lose in the initial days.
Step 5 – Form a View About the Stock You Decide to Trade
I decided to trade City Union Bank. I did not choose Eicher Motors because the overall market was going up so I did not want to take risks with a ‘sell’ trade on a bullish day.
I did not choose Indigo because it had already increased by 20% in the last two days so I was not sure whether it would go up more.
For City Union Bank, the quarterly earnings were very good and the stock had gone down a bit in the past few days. So I felt that the stock will react very positively to the news.
My view was confirmed on market opening when the stock opened ‘gap up’. The stock went up by more than 5% in the first 5 mins itself.
I thought I should wait for some time to enter because there is too much fluctuation in the first 15-30 mins of market opening.
Step 6 – Identify Correct Entry/Exit Level and Place Trade
It is important to wait and observe the price chart before entering a trade to see how the stock is reacting to the news.
After the first 5 mins, the next few candles were red indicating that the price is going down. I decided to enter when there is a green candle.
I entered at the end of the first green candle as I expected the price to start going up from here again. I bought the stock at Rs. 121.5.
I was trading with a margin of Rs. 50,000 and the leverage provided by the broker for this stock is 5x. So my maximum buy value could have been 50,000*5 = 2,50,000. I bought 2000 shares, which utilized almost my full margin.
As a beginner, you should understand ‘price-action’ to identify correct levels to enter. Here are some basic tips that you can follow to identify trading levels
- Do not place a trade in the first 15 mins of market opening. Observe the first few candles (on a 5-min candlestick chart).
- If you are planning to buy a stock, enter only after 2-3 consecutive green candles.
- Do not be too greedy, place target order 1-2% above your buy price. (depending on news impact)
- Place stop loss 1-1.5% below the buy price.
- If you see 3 consecutive red candles, exit the trade (even if SL not hit)
- From the ‘Indicators’ tab on your price chart, plot ‘Moving Average’ on the chart. If you are planning to buy a stock, buy only when the price is above the moving average line.
You may refer the following to understand more about identifying the correct trading levels:
Upcoming Article : Guide to Identify Trading Levels (Support/Resistance, Entry/Exit)
Step 7 – Once You Gain Confidence, Place Trade
If the stock price seems to be behaving as per expectation and your planned levels are reached, you can enter the trade.
Once your order is executed, you can place a ‘Bracket Order’. In a bracket order, you can enter your target price and stop loss. Your target price will be the price at which your target profit for the trade is achieved.
All your trades will not be correct. So it is better to keep a ‘stop-loss’. Stop loss means that if the trade goes against you, the price at which you will book a loss and exit the trade. Generally, you should keep a stop loss order 1-2% below your buy price.
For example, HDFC Bank stock is trading at Rs. 1000 and you expect it to go up by Rs. 20. So you will place a target of Rs. 1020 in the bracket order and Rs. 990 (1% below Rs. 1000) as stop loss.
The advantage of placing a bracket order is that you will not have to constantly monitor your trade. If the target or stop-loss price is hit, your trade will be executed automatically.
For my trade, I placed a bracket order of Target Rs. 122.75 (1% above) and a stop loss of Rs. 120.25 (1% below).
Two hours after the entry, my target order was hit as the stock went up till Rs. 122.9. My target order of Rs. 122.75 was executed and I made a profit of 122.75-121.5 = Rs. 1.25 per share and a total profit of Rs. 2500. (1.25*2000).
I achieved over and above my target of Rs. 1000 for the day within 2 hours. I decided not to trade for the rest of the day as I did not want to be greedy and risk the profit that I earned that day.
Trading is about 80% mindset and only 20% skill. Keep your emotions in check when you are trading. Many times, your trade will go wrong and show a loss.
Most people keep holding onto losing trades hoping that it will rebound and book profits very early. But you will need to learn when to book profits and when to book losses when necessary.
Remember that not all your trades will end in profit. But to be a successful trader, you will need to maximize profit on your correct trades and minimize losses on your losing trades.
If you learn how to do this, nothing can stop you from achieving your daily profit goal.
So start learning,practicing and trading!
When you start trading, you will feel like trading anything and everything. But remember not to trade randomly. Random trades mostly end up in loss.
It is also easy to get addicted to trading. But remember, that it is a serious thing and not a game. So do not overtrade and trade only when there is a high probability of making money.
Some people also experience anxiety when trading and they end up monitoring their trade every single second. A lot of traders end up neglecting their health when they get too engrossed in trading.
You may experience the same things too. Thus, keep your emotions in check when trading and do not let trading consume you.