Share Market investment is a great way to earn a multi-fold return on your money. There are several ways to make money by investing in the stock market. A few people deploy their money into the market for a few years while others stay invested for decades. Both types of investors make good wealth, in the long run, if they use the correct strategy for their stock market investments.

Besides them, there is another type of market participants who deploy their money in the market for a shorter term. They are called short-term traders and their working style is called Intraday Trading and Positional Trading. Here, we are not going to talk about them. Here we’ll talk about ways to make investments in the stock market – setting long-term goals.

How to Invest Money in Share Market ?

There are three major ways to invest in the stock market:

Investing in ETFs (Exchange Traded Funds)

ETF Investing is a relatively secure and easier way to make good returns. These funds are created by tracking the performance of major indexes or commodities such as Nifty, Bank Nifty, Nifty IT, Nifty FMCG, Gold, Silver, etc. You can also invest in the ETFs that are based on US indices, to encash the performance of US markets. One such ETF is MON100 which is based on the NASDAQ composite – an index that constitutes major US-listed stocks.

Investing in Equity Shares

This is the direct way of making an investment in the stock market. In this, you need to find out the best companies based on their performance. You also need to check the performance of their stock. If the company is good but the stock is not performing then it is not good for long-term investment. The only convincing thing to put your money in such stocks should be huge dividends. If the company doesn’t provide dividends and its stock is also underperforming, you should not deploy your money into it.

Investing Through Mutual Funds

This is the indirect way of making a share market investment. These are also funds, like ETFs, managed by reputed fund houses but cannot be traded on the stock exchange. You need to go for this way of investment via a fund house. The managers of these funds are generally highly experienced professionals. Therefore, the risk on your investments is quite lesser compared to direct dealing in equity shares.

Share Market Investment Strategy

Many people think that stock markets are the easiest way of making money which is not true. Based on my own experience, I can say that it is the most difficult way to make money. However, it is an interesting job to do because it takes you into the ocean of research and analysis. Research and analysis involve a creative process, and creativity itself is fascinating, making the job inherently interesting.

Let’s understand a few important strategies and practices to follow, before diving into this interesting and stimulating world of investing.

Divide Your Funds

The first thing you should do is – divide your funds into at least five parts. I am saying so because putting all the money into a single stock is always risky. On the contrary, if you have deployed your money in five different stocks/ETFs, it’ll cut down the risk on your investments. Therefore, divide your money into five or more different parts and make your stock market investment diversified. Thus, you’ll avoid losing big money if a couple of your chosen stocks underperform or crash.

Identify Performing Stocks by Looking at Their Charts

Your second step should be to pick at least 50 stocks that include large-cap, mid-cap, and small-cap companies. After making a list of these stocks, start looking at their charts and identify if the stock price is making an ascending pattern.

Once you have done this, eliminate the underperformers and keep the ones that are making rising price patterns.

Fundamental Analysis of the Stock

Now you need to check the fundamentals of the shortlisted companies. It includes book value, ROE, ROCE, Debt-to-Equity ratio, and shareholding pattern. Though there is a lot to study in the balance sheet of a company, these few things provide an adequate idea of the health of the business. Apart from them, you also need to check if the company has been making consistent profits for at least five years. Also, check the assets and liabilities of the company; it should have more assets than liabilities. If a company passes through all these criteria, pick it up for final screening.

Technical Analysis of the Stock

After the fundamental study, it’s time for the technical check of the stock. Now because you have found the stocks which are fundamentally strong, it’s time to wait for the stock to exhibit a bullish signal on the chart. There are several technical indicators that could help you identify if a stock can be bought. A few of them are Moving Average Crossovers, Double-Top patterns, and trend lines and channels. You can use one of them or some other technical indicator. And, once there is a bullish signal on the chart, it’s the right time to make the investment.

Keep the Stop Loss

Markets are too volatile these days, therefore, I prefer to keep a stop loss for all my stock holdings. Experienced and legendary investors generally don’t keep the stop loss on their holdings because they know a lot more than retail investors. Therefore, I suggest to pre-decide the stop loss for all your investments and follow it rigorously. Also, remember to trail to stop loss upwards with the up move of the stock.

Conclusion

Investing in the stock market is a great way to make money but it can backfire if done recklessly. Therefore, do a proper study of the company’s balance sheet and stock chart. Also, remember to follow the practices that would protect your capital, to make your investments a success. Further, you can follow/subscribe to this blog to get notified about newly published articles about the stock market.