1.
Basics of Stock Trading
Demystifying Stocks

2.
Introduction
There are many traders whose trading style are based on blind faith or are limited
to “this stock is going up so we should buy it.”
This group of traders invests like the masses and then wonders why their results are
mediocre as they don’t understand the basics of stock markets and mostly end on
the losing side.
So before one starts trading, it is important to understand how the stock market
works and how to evaluate stocks before trading.

3.
First things first
•The first step before starting any kind of trading or investing is to analyze their risk
and return profile and then invest and trade accordingly.
•For example, if the investor has low risk profile than he should not trade and should
also not invest in high beta and growth stocks with high P/E ratios.
•And only if the investor has high risk profile then should he trade in stock markets
and invest in risky stocks.

4.
Basics
The following are some of the basic things one should understand before venturing
into stock trading:
1. Understand the basics of stock market: Before venturing into stock market one
should try and understand how the stock market works, what moves the price of
the stocks and how to trade in stocks. Only once this is clear than only one should
start trading.

5.
Basics
2. Understand trading strategies: Once
it’s clear how the stock market
functions one should try and
understand various methods used for
trading like trades on the basis of
techniques
of
technical
or
fundamental analysis. If one does not
base his trades on sound analysis
then it’s more of gambling rather
than trading.

6.
Basics
3. Evaluate the business and stock both: Before buying and trading stocks it is not
only important to evaluate the stock but it is also important to evaluate company
level factors like corporate governance and management.
4. Try back testing the trading strategies: Before entering the stock market it is
always advisable to back test the trading strategies.

7.
Basics
5. Consistent trading strategies: Always try and have a consistent approach towards
Trading. Don’t change your strategies too much. If one trading strategy is resulting
in consistent losses then only strategy should be changed but at the same time
one should try and evaluate the reasons for the failure of the strategy.

8.
Basics
6. Always Diversify: Never put all your money in one trade or investment. Always try
to diversify your trades. Nobody is 100% accurate in the stock market and even
the best of trading strategies can result in losses.
7. Always do your own research: Do not invest on tips and hints given by others.
Trade only if you believe on the basis of research that the stocks are worth
investing.

9.
Basics
8. Cheap stocks are not always multi baggers: Some traders feel that cheap stocks
are undervalued stocks but that is not always the case. Do not think that low
priced shares are always cheap. Buy stocks only if you think they are undervalued.

10.
Basics
9. Avoid averaging: Do averaging of
stocks only if you think that at
current prices the stock you are
investing in is the best available
option.
10. Trading is always risky: Equity
investments and trading always
come with some risks. Only trade
and invest in equity if you are
willing to take such risks.

11.
Basics
11. Use stop loss: Nobody can predict the stock market and even proven strategies
can go wrong at times so it is always advisable to use stop loss to restrict your
losses. It is generally seen in the market that traders hung on to losing
investments for longer period of times because of fear of loss.

12.
Conclusion
•When you are starting to trade, it is best to start small and take risks with money you
are prepared to lose.
•As you gain confidence and become more adept at evaluating stocks and reading the
market sentiment, you can start making bigger trades and investments.
•It is always advisable to start learning to trade in more stable markets before jumping
into the volatile markets.

13.
Thank You
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14.
Disclaimer:
Kotak Securities Limited, Registered Address: 27 BKC, C 27, G Block, Bandra Kurla
Complex, Bandra (E) Mumbai 400 051. Correspondence Address: 6th Floor, Kotak
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Sandeep Chordia. Tel. No: 022 6605 6825. Email id: ks.compliance@kotak.com.
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•
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