“Don’t fall into the trap of trading; it is gambling.” “Trading will loot all your money.” You probably have heard these words from someone in your family or among your friends. There are people you see around you suddenly flexing their rich cars and commodities and asking you to try trading as well, and then you are confused about whether trading is a skill or it is luck and what really makes you a good trader.
To understand this, let us look into how trading works.
What is trading?
To understand what makes you a good trader, you will have to first understand what exactly trading is.
Trading is simply buying and selling things, like stocks or currencies, to make money from the price changes.
Let’s say you go to the wholesale vegetable market and buy 10 kg of tomatoes for ₹200 (₹20 per kg). Then, you take these tomatoes to your area and sell them at ₹30 per kg to people in your locality.
Here’s how your trading would work:
| Action | Details | Amount (₹) |
|---|---|---|
| Buy 10kg tomatoes | At ₹20 per kg from wholesale market | 200 |
| Sell 10kg tomatoes | At ₹30 per kg to local customers | 300 |
| Total Profit (₹300 – ₹200) | Difference between selling price and buying price | 100 |
In this example, your trading profit is ₹100. You bought low and sold high. Trading in stocks or currencies works similarly, but instead of vegetables, you’re buying and selling shares or currencies hoping their prices will change so you can make a profit.
What is the share market?
The share market is a place where you can buy and sell shares of companies. Think of it like a big marketplace, but instead of buying fruits or clothes, you are buying tiny parts of ownership in companies. These parts are called shares.
When you buy shares, you become a shareholder, meaning you own a small piece of that company. If the company does well and makes more money, the value of its shares might go up, and you can sell your shares for a profit. If the company doesn’t do well, the value might go down, and you could lose money.
So, the share market is where people and companies trade these ownership pieces, and the prices of these shares change based on how well the company is doing and what people think it will do in the future.
How Traders Choose Stocks
Traders look at many things to decide which stocks to buy and sell. It’s a mix of understanding companies and market trends. Choosing the best stocks is one of the few trading skills.
Some Simple Strategies
Researching Companies
- Checking Company Performance: Traders look at how much money a company makes, how well it’s been doing, and if it has good plans for the future. This can involve reading company reports and news.
- Understanding the Industry: Traders also study the industry the company is in to see if it’s growing or facing problems.
Market Trends
- Looking at Price Charts: Traders often use charts to see how a stock’s price has changed over time. They look for patterns to guess where the price might go next.
- Keeping Up with News: Any big news about a company or the economy can change stock prices, so traders stay informed.
Technical Analysis
- Using Indicators: Traders use tools called indicators to help them see trends in the stock market and make decisions. Using indicators is one of the trading skills of a kind too.
Simple Strategy Example
- Find a well-known company: Start with a company you know and that is doing well financially.
- Look at the stock chart: see if the stock price has been going up recently.
- Check the news: make sure there are no major negative news stories about the company.
- Set a price: Decide on a price you’re willing to buy the stock at and a price you plan to sell it at for a profit.
It’s important to remember that trading stocks involve risk, and no strategy guarantees success. Thus, a good risk management strategy is also a must when you enter the domain of trading. Good risk management is a reflection of your trading skills.
What are the skills that are required to be a good trader? The best trading skills
Trading requires a set of skills that are needed for trading; here are the most essential trading skills:
Analytical skills: Trading is all about understanding the patterns and charts to understand trends. To be a good trader, at some point, one needs to have great analytical skills to understand the charts and also to use them in a way that they serve as tools and help them make great profits.
Ability to research: Trading can not be done without good market research; this research requires deep skills on different topics that might affect the price of the shares. Since any major or minor event can shift the market to a great extent , it is important to do deep research of the market. The research shall be thorough, and that too in minimum time.
Financial literacy: A stock trader should have an understanding of how finance works and have adequate knowledge of the finances. A stock trader generally knows how to read and interpret financial statements, including balancing balance sheets and other finance-related things.
Ability to work under pressure: Trading is not a walk in the garden; it requires immense concentration and constant thinking, especially when you are doing day trading. There is always a stress that keeps the trader awake at night. So, it is not for light-hearted people; the trader has to absorb stresses and the anxiety of failing constantly.
There are other mental skills that a trader requires too; this is the core of trading psychology, and we have discussed that in this blog. Beyond trading psychology, which has been previously discussed in this blog too 5 Best Tips to Cultivate a Trader Mindset are: The Psychology of Trading
Portfolio management: To develop the skill to oversee a group of investments for a long-term investment is very crucial; successful long-term investment relies on well-defined plans and anticipated future returns. This necessitates a thorough grasp of essential portfolio construction and management principles, such as asset allocation, diversification, and rebalancing.
Risk management: Risk management is another important trading skill of a good trader
is another crucial skill for a good trader. It involves understanding and controlling the potential losses in trading.
This includes setting stop-loss orders to limit downside risk, diversifying investments to avoid overexposure to a single asset, and determining appropriate position sizes based on risk tolerance and account size. Effective risk management is essential for preserving capital and ensuring long-term success in the volatile world of trading.
So, I suppose you have gotten your answer by now on “What Makes You a Good Trader—Luck or Skill? Though it might appear a matter of luck at times, lucky gains are never long-term. To have trading as your valuable investment, you will have to sharpen your trading skills. A person can be lucky twice or thrice, but such luck comes with the cost of heavy losses. Without having a good trading strategy and a trading mindset, a trader is always at a high level of risk.
FAQs
There is no set starting point, but having enough capital allows you to spread out your investments and lower your risk. You could technically start with ₹2,000 or ₹3,000, but having at least ₹50,000 to ₹100,000 could provide more safety for your trading and losses. Keep in mind that day trading comes with a lot of risk, so trade with money that you are comfortable losing.
No, you cannot start trading with zero rupees. You need capital to buy and sell stocks or currencies. Trading requires you to invest money to participate in the market and potentially make profits. If you are a beginner and want to learn the basics of share market, you can check out this blog Master the Basics: Share Market for Beginners – Key Terms & Concepts.
As per SEBI (Securities and Exchange Board of India) rules, people in India need to be at least 18 years old to open a Demat account and start trading stocks and other securities. An individual must have reached the age of majority and have the legal capacity to sign or agree to contracts before getting involved in trading.
Conclusion
So, I suppose you have gotten your answer by now on “What Makes You a Good Trader—Luck or Trading Skills? Though it might appear a matter of luck at times, lucky gains are never long-term. To have trading as your valuable investment, you will have to sharpen your trading skills. A person can be lucky twice or thrice, but such luck comes with the cost of heavy losses. Without having a good trading strategy and a trading mindset, a trader is always at a high level of risk.
I am glad you have come this far in the blog. After learning that trading means working hard and understanding the process, one can successfully master it with time. If you want to take your first financial steps, head to StofinIQ, where you can find help on trading, mutual funds, and overall financial management. In that case, you should now be more aware of the reasons behind successful trading.
On StofinIQ, you can find useful content and support on many sides of finance, from mutual funds to strategies that help you manage all things money. Fond of learning, be mindful of the subject before moving forward, and don’t stop asking questions and sharpening your trading skills.
