Tutorial 1

As a part of my initiative to educate the newbies and warn the rest abt the realities of Stock Market,i m starting with a new series TUTORIAL.In this i ll be highlighting the basics that hv to be borne into mind while investing.I ll be posting every saturday a new topic with regards to this Tutorial.With out wasting much of time,let me start with the topic for this Saturday.

What is a trading system?
A trading system is a collection of rules that define everything you may do before,and more imp,aft you buy any stock or investment.It is a planned approach that provides structure to your investment activity in the market.

The trading system is basically a plan that not only says how you are goin to trade successfully but what you are goin to do if things go wrong.

Building wealth is just like building a house.You wouldnt build a house without a plan and neither should you attempt to build wealth through trading without a solid trading system.

NEVER PUT ALL OF YOUR EGGS IN ONE BASKET


The most imp rule of investing properly in not to lose the money that you hv started wid,This might seem obvious , but it is amazing how many ppl's trading strategies dont look at ways of managing risks.

There is some form of risk involved in every kind of investment.Risk management means taking action that will significantly reduce the likelihood that you could lose the money u hv invested.

One of the 1st things that u can do to reduce the risk is diversify.You may b familiar wih the term "diversification".When talking abt investment this really means spreading the risk.

If u hv all of ur money in 1 stock u hv more possibility of losing it all.Imagine if that stock unexpectedly goes down.Even bfore u could sell the stocks u own,u may hv lost a major portion of ur investment.

On the other hand if u hd taken the same amount of money and spread it over four diff stocks it is unlikely that all of the 4 stocks will fall dramatically at the same time.This is esp true if you make sure that the stocks are in diff industries.

So how can u put this idea into practise?By creating a simple first rule in your trading plant that limits the amt of investment capital that you will risk in any one investment.

For example,if u hv Rs.10,000 to invest then u may wish to create a rule whereby u nvr put more than 10% into any one share.This means that u wud not invest more than Rs.1,000.That way if a particular stock goes bad,the most u can lose is Rs.1,000.

Whether u know it or not,u hv just introduced the concept of money management into ur trading plan.Money management means using rules to protect ur money regardless of whether the stock market goes up or down.We'll learn more abt money management in the next few tutorials.