Whether you are entering a stock market as an long term investor or a short term trader , planning is a must to succeed . The planning is basically will involve Goal , Time and Money .
Stock Trading - Need for a plan
Any new economic activity needs planning . A trade which has grown organically over the years may or may not need a plan for the new year. But any fresh initiative definitely needs a plan . Stock trading, if bought position only is a High Risk venture where one can lose up to 100 % of his investment . If stock trading initiated by first sale position or called oversold position , the risk is unlimited . Hence any investor or trader in stock should not only be prepared for loss , but also should have a plan and strategy in place before entering the market .
Analogy of A vegetable market
We have seen catastrophes happening in our agricultural world . One day cabbage Was selling at 40 Rs per KG and the next day prices crashed to Rs 3 per KG . Plenty of supply was the reason . Previous day there was no cabbage available in the market . If you follow the market , you can see such things happening for tomato , onion , potato or any other vegetable often . . Many times , farmers through away their produce on the roadside for nothing . No wonder many farmers resort to suicide , unable to bear cost , loan , interest and transportation
Why it happens ?
Today cabbage prices have crashed and beans are in premium . All farmers stop sowing cabbages in their village and start sowing beans . So , next time , every farmer has grown beans and no cabbage available in the market . When they reap them also on the same day , inevitable crash happens . At that time , cabbage will be in premium as no cabbage will be available in the market . So whatever they grow, farmers’ plight continues . What are the reasons for such a crash ?
1. All farmers sow the same crop simultaneously
2. Their entire farm is sowed with one most profitable crop.
3. Entire produce is harvested on the same day and transported together to the market , to save transportation cost .
4 . Entire produce is sold in the same market .
Result is crash of market price and poor recovery .
Further most of the cost of production is met by loans only and under recoveries result in carrying over loan and interest burden for the coming seasons . Ultimately farmers live a life of poverty and deprivation ,in spite of good yield . One can imagine their position when there is famine .
Is planning will be a solution ?
Can anything can be done to change their lives ? Just some simple steps may change their lives .
1. Not to sow more than 25 % of their land with a single crop .
2. Spread the crop to four sowing days with at least a week’s gap
3. Improve the yield by improving the techniques .
4. If different markets can be explored ?
So markets will also not have a boom and famine of any one particular crop and prices will be steady with steady income for farmers .
Stock Market - Are our retail investors different ?
Stock Market is no different than our Agriculture market . Stock Brokers were ruing about the absence of retail investors / traders in recent years . Once their offices were booming with lots of customers and activities . Share prices , just like cabbage prices , had crashed . Most of the customers had left the stock market about the crash after burning their fingers , if not whole of their entire investment in the market . There were instances of investors committing suicide over huge losses , many times on borrowed money , Similar to farmers’ suicide. Now again retail investors are flocking seeing a boom .
Most of the stock market investors are educated , upper middle class or rich from urban or semi urban areas while farmers are from poor , rural and illiterate class. They are class apart. Still similarities in their actions ? One thing common was financial burden in both the cases . Both had made similar tragic mistakes , in spite of their different backgrounds .
Some of them were
1. While farmer had sown cabbage when its prices were peak neglecting all other crops , our stock market players had invested all their money in the stock market when markets were peak or nearing peak . All eggs in a single basket.
2. Like sheep , they were following in one single direction .
3. Both had thought prices move only north when they invest .
4. Neither had diversified , while farmers had neglected other crops and stock market addicts had forgotten other investment avenues .
5.While farmers were constrained to borrow because of their weak economic condition , our educated rich brethren had borrowed beyond their means with an intention of making quick money .
6 Ultimately markets crashed and people paid price on their mistakes .
Stock Trading – Is it a gamble ?
Is stock trading a gamble like a buying a lottery ticket or going to a race course and hence needs no planning ?
Day to day changes to stock prices are matter of chance depending up on the various factors , circumstances nationally and internationally . Share prices may move because of the performance of the company in question . Many incidents happen out side the control of any one human being including the company in question and price movement is determined by collective actions of all the investors of the share . If asked ,many promoters of the companies would not be knowing definitively about the direction of the performance of their companies or its share prices . But many Marker Pundits, Gurus , Advisors , counselors claim 100% correct prediction .
Most of the investors would not be knowing in real time exact happenings in the company and its activities . Further the performance of the company it self is based on many uncertainties .Hence entering in to a market which has its uncertainties and unknowns is a gamble . But even while gambling , one needs a plan .
Read the article “Stock markets and Race courses “ to see how planning helps even for a gamble
share markets planning a must
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