How to Make Money in the Stock Market [2023]

Every investor entering the stock market always aims to earn a considerable return on the investment. Undoubtedly, stock trading provides an opportunity to make a lot of money but also comes with risk. Therefore, often financial experts recommend obtaining the necessary skills to trade in the stock market, stay up to date with the latest market trends, keep investment portfolios diversified, and use other best practices to earn money from stock trading. 

In this article, I will take you through some practical ways to profit from the stock market for beginners. Even if you are an experienced trader, reading this article will be advantageous as you will learn about some best practices that will help you increase your long-term returns exponentially. 

How to Make Money in Stock Market

1. Buy & Hold Strategy

There are several ways an investor can make money from the stock market. Buy and Hold is one such strategy where you normally buy a stock or securities and hold for a longer time rather than involving in frequent buying and selling activities. Traders who frequently buy and sell stocks or marketable securities in the stock market often miss out on several opportunities to make strong annual returns. 

According to Putnam Investments, those investors who stayed invested in selected stocks for 15 years through 2027 earned 9.9% annually. In comparison, the investors who kept themselves involved in frequent trading and missed the ten best trade opportunities earned only 5% of annual return, and those who missed the 20 best trading days earned only 2% returns. Nevertheless, traders who missed the 30 best trading days saw negative investment returns. 

2. Prefer Mutual Funds & ETFs Than Stocks

A straightforward method to earn money from the stock market is to diversify your investment portfolio with mutual funds and ETFs. Investing in mutual and exchange-traded funds is recommended if you are a beginner investor and feel challenged to make a wise investment decision. This way, you can diversify your portfolio, minimize risk factors, and increase your return on investment. 

Investing in individual stocks requires a sizable cash commitment, while the case is different in mutual funds. These funds come at a normal SIP amount that investors can use as per their investment appetite. 

Related: Difference Between Value and Growth Investing

3. Reinvest Earned Dividend on Stocks

Most companies pay periodic dividends to their shareholders based on the profit they make in their respective periods. While you are an early investor, the dividend amount may seem less based on your investment in the company. However, still, it's a wise choice to make better use of earned income and put it again in the market to maximize earning potential. 

According to a report, Nifty 50 stocks can offer 12% to 16% of the dividend. If you have invested Rs 1 lakh in stock and it offers a 15% dividend, you can easily earn Rs 15,000 and reinvest it to buy more shares so that your earnings can compound faster. Also, many financial advisors suggest investors reinvest their earned dividends to buy more high-value stocks rather than spend on personal needs. 

4. Participate in Swing Trading

Another great and beginner-friendly strategy to profit from the stock market is to perform swing trading. Swing trading is a type of stock trading where you participate in trade to hold purchased stock for a couple of days so that when the price increases, you sell them to earn higher returns. Though swing trading is not a proof Strategy to earn Rs 1,000 daily from the stock market, the stock market, if your trade is successful and yields a return, you can easily meet the target profit. 

Best Practices To Make Money in Stock Market

So, you have learned how to earn money from the stock market. Let’s now also explore some best practices to maximize earning potential in the stock market and mitigate the chances of making a loss on executed trades. Below are some of the tested and industry-standard techniques to avoid loss in the stock market. 

1) Trade in High-Volume Stocks

One of the first guidelines of stock trading is prioritizing shares with high volume or liquidity. The high volume or liquid shares are the shares that pass from one investor to another more quickly as part of the stock trading hours. As day trading needs to perform before the stock market closes, the stocks’ liquidity often helps in returning benefit to investors. Invest some time in figuring out highly liquid stocks in the share market. 

Also, only invest in the shortlisted stocks if your detailed analysis hints about high performance. Create a list of ten high-volume stocks and monitor their performance and how they move in day trading. 

Related: What is PE Ratio in Stock Market

2) Keep Greed & Fear Aside

Most investors in the stock market make a loss because either they get caused by greed or too many features. Both are unforgivable things in stock trading, and you must keep them aside while participating in trading activities. Stock market conditions are unpredictable, and there are many scenarios where even experienced traders face substantial losses on their trades. So, it's wise to use advanced features available in stock trading tools to control your losses. 

3) Develop Consistency in Entry & Exit Points

If you are a complete beginner in the stock market and willing to engage in trading, it's essential to pick entry and exit points accurately. These two are pillars of the stock market. They will play a vital role in deciding whether you are generating profit from the stock market. Thus, whenever you aim to enter a trade, always consider the portfolio’s entry point and price goal on a priority basis.

The price goal is the stock’s properly calculated price based on its past performance and predicted earnings. If the stock’s price is below the goal price, it’s the right time to purchase so that when the price increases and reaches a set level, you can sell it again and generate profit. Setting a goal price and entry/exit point will also prevent you from being greedy or afraid. 

4) Use the Stop Loss Order Provided By Your Stock Broker

Stop loss order is one of the vital and advanced features available in most stock trading software today. A stop-loss order helps traders minimize their losses. As it can mitigate big losses, you should always prioritize them when planning and executing your day trading strategy.

 If you are a beginner in the stock market, set the stop-loss at 1%. For example, you get a firm’s share at Rs 2,000 and set a stop-loss at 1%, which is Rs 20. So, as soon as the share’s price comes to Rs 1980, your trade will get closed, mitigating further loss that may happen if the stock price continues to decrease. 

Related: What are the Types of Investment

5) Stay Updated with the Latest Stock Market Trends

Staying tuned with the latest stock market trends, news, and updates from credible sources, will always help you to make money in the stock market for beginners. It's impossible to earn money from the stock market if you don’t follow any news source and gather the necessary information about the shortlisted stocks to buy or sell in the stock market to generate profit on trades. 

6) Keep Learning & Updating Your Trading Skills

The stock market is dynamic and keeps evolving with time. Taking stock trading courses and utilizing relevant resources to keep up with market trends and regulatory changes and explore emerging technologies is important. You should also learn from previous or already executed trades to understand what actions you can take to improve your entry and exit points as well as trading strategies. 

Summary

From day trading to investing in mutual funds or ETFs, there are many ways to make money from the stock market. However, if you aim to make money from the stock market, it's recommended to avoid speculating day trades in the initial days of your trading journey. You should invest in low-cost index funds, buy & hold some of the promising stocks for longer, and perform swing trading for selected stocks. 

Suggested Posts

Benefits of Investing in Bonds

How to Make Money from ChatGPT

Where to Invest Money for Better Returns

References: 1, 2, 3, 4, 5