How to earn money from the share market
Buying stocks in order to sell them off or vice versa on the same day is called intraday trading. The profit and loss is therefore daily targeted and evaluated. Traders in this case do not wait T+1 days to get delivery of their shares in their demat accounts.
- It is low value but high volume of trade
- The risk as well as gains per trade tends to be small
- Over time, the gains tend to be higher due to greater compounding of the same investment.
- Trading is done more based on technical analysis (especially price action) rather than fundamental analysis
- If you are facing loss, and have money in your bank, then you can choose to convert the trade to delivery mode.
If your targets are set on a day-to-day basis, then intraday trading is the best for you. Focus on technical parameters such as daily and weekly prices, moving averages, relative strength etc. If you think that a stock or ETF is undervalued i.e. its price is going through a temporary dip, then buy it and wait for the price to rise.
Even if you make only an average of 1.05% profit daily (likely through multiple trades, not just one), in 250 days (rough number of days the stock market remains open each year), a mere ₹10,000 can be converted into almost ₹1.4 lakh (10,000 1.0105250=136,169). The profit being nearly ₹1.26 lakh over 250 days, in each working day you will have earned over ₹500 on an average. Since this method relies on compound rate of growth, the actual per day profit would increase over time.
Delivery trading is when you buy shares and hold them for a certain interval of time – by definition you wait T+1 or T+2 days in order to take delivery of the share. Once you buy them, they will be reflected in your demat account, where you can keep them for as long as you want.
In this case, suppose you keep weekly targets – if your initial investment is ₹10,000, you must earn a profit of around 5.25% per week in order to earn a similar ₹1.43 lakh in one financial year.
in swing trading, you try to make gains in stock in a span of a few days or weeks. You buy a stock today at some price, and wait for its price to go up. After a few weeks or a few months (going up to 6-8 months), you sell it when the prices are high.
- If the price goes low after your purchase, you make a loss. If you sell it at a higher price, you stand to make a good profit
- Such trades do require fundamental analysis but only of a short term – based more on recent and upcoming events and tactics. Fundamentals such as quick ratios, sales growth, product launches, new strategy announcements etc. may serve as important indicators.
If the targets you set are monthly, then you must earn a 25% monthly profit in order to transform ₹10,000 into ₹1.45 lakh (and thus above a ₹500 daily profit – counting working days only).
If you are trading in options, you have the right, but not the obligation, to trade shares at a specified price in a particular time limit. A futures contract will require you to buy or sell a share on a specified date in the future unless your position is closed before that date. An advantage of derivative trading is that you do not have to invest/risk the entire amount of trade value – instead you can still trade by investing just the margin requirement and still make a profit by buying and selling derivatives.
Derivatives trading timelines may vary as per the expiry dates available (monthly or weekly) as well as depending on the predictions you choose to act upon. Therefore it is foolhardy to have daily targets in this strategy.
Therefore, derivatives are complex and have a very high risk-to-reward ratio. If you are a beginner in the share market business, it is best you hold off dealing in options and trading until you have gathered enough experience.
Share Market Investment Tips
- Trade in shares that are liquid e.g. shares with high volume or low lot sizes – it is important for intraday traders to be able to square off their position the moment the market conditions and prices are optimised.
- Be cold and patient, not emotional and greedy – if you have a sound strategy and target, then meet the target and go beyond it only if the momentum is high. Intraday has enough risk already – do not push it.
- Use stop loss – in order to reduce your risk exposure.
- Follow the market momentum – especially in intraday trading where price action is a more important criteria.
- Do research on both concepts as well as current affairs – especially for swing trades.
- Optimise your diversification – you need to diversify in order to reduce the risk but not so much that you fail to keep track of them in the crucial hour.
Now that you know how to earn ₹500 per day from the share market, it is important to conduct your trading on a platform that is capable of giving you the best operability and guidance. Open a free demat account with Angel One in order to start earning from trading.