How to Invest Money in Stock Market

Equities have been the best asset class for several years now. If you compare the returns given by stocks in percentage terms with the ones given by other forms of investment such as bonds, mutual funds or fixed deposits, you will discover that equity traders and investors have made much more money. Once you know how to invest money wisely in the markets, then earning handsome returns every year will not at all be a problem. So, go through the following steps on how to invest money in stock market.

Steps for Stock Market Investing

Observe Market Movements
One of the most important tips for investing money in stocks would be to watch their movements daily. This will help you to know their recent highs and lows and the nature of stocks-whether they are slow movers, volatile or move as per market direction. Try to classify stocks into the above three categories as this will make investing money easy.

Understand the Company Fundamentals
All investors looking for ways to invest money should first try and understand the company fundamentals. These include earnings per share, total turnover, net profits, net profit ratio, gross profit ratio, market capitalization etc. Often stocks with sound fundamentals get a premium in the market and chances of making decent profits in them are very high. Valuation analysis plays a crucial role in deciding whether a stock is expensive or cheap and you can learn this only after a good deal of experience in the capital markets. So, you should concentrate on such stocks instead of the ones which are too volatile.

Technical Analysis
Technical analysis of stocks is imperative in order to buy stocks at right levels and exit from them at the right time. It is said that only those investors who can buy at the lowest point and exit at the highest point can make money. This can happen only if you can read technical charts properly and predict future stock prices. Studying the volumes of stocks being traded is also equally important as you can know of the rising or falling investor interests in a stocks with the help of this information.

Portfolio Creation
The best way to invest money in stocks is by preparing a diversified investment portfolio. You should make sure that you are not over-exposing to a particular sector of the economy. Have quality large cap stocks from all sectors such as information technology, banking, finance, pharmaceuticals, oil and gas and shipping to make a complete portfolio. If you are an aggressive investor, then you can buy some good mid cap or small cap stocks which are more volatile, yet can give better returns at times.

Go Long or Short as Per Market Conditions
Going long and short are the different ways to invest money in stocks. When you go long, you buy stocks and hold them till you get substantial appreciation in the stock price. When you sell short, you sell shares which you do not own and buy them at lower prices and pocket the difference. You should go long in a powerful bull market and short in a weak bear market.

Decide Period of Investment
Deciding period of investment is necessary for gaining money in stocks. Ideally, investments should be made for minimum one year for long term investors. Traders can take positions for a few days to get advantage of speculative moves in certain stocks. However, the risk increases with short term positions and hence you should ask yourself how much risk you can afford to take.

This explanation on how to invest money in stock market will definitely guide you in the right way. Another point which I would like to suggest here is that you should not make leveraged positions in the market as this is extremely risky. So, play the market carefully and earn well. Good luck!

DISCLAIMER: This article is just for reference purposes and does not recommend any stock market transactions.