I know of a trader who is making lakhs per month and I also know of an investor who made lakhs and crores by investing on value picks.Although they earn from the same market but their styles of earning are very different. Their main motive is to earn from the market.
The trader whom I came to know from a WhatsApp group plays it big.He learned technical analysis first.His favorite instrument is an option.He says that he likes option because he can diversify his positions by investing very little money.Whereas in futures for taking the same amount of position he has to pay more.And there is a more associated risk in futures if the trade goes wrong.But in options, the maximum he can loose is the premium of the option.Options provide us with a heavy amount of leverage.He also plays in cash during the market opening when the movement is high.
He used to be an engineer in the railways now he is a full-time trader.He says he got interested in trading after earning 10 lakhs in a single day in 2012.It was during the time of elections.After seeing the earnings he got enthusiastic about trading stocks.Since then there was no looking back.He started trading for a living.He does not stake too much of his money on a single trade. He takes multiple positions.If one goes wrong then the other makes up for it.He does not put all his money on a single trade.He believes in going small on a single trade, maybe 1 or 2 lots.He says slow but steady wins the race.In spite of how much he earns he does not let his ego come in between. The biggest problem of a trader is his ego. Lets us clarify why ego is a problem of a trader.
Trading is a game of probabilities. There is no absolute that this is going to happen for sure. What a trader does is he try to find high probability trades.In spite of all his analysis the trade may go wrong.And the trader needs to close the position in that situation early before the loss becomes huge.But if a trader becomes egoistic then he will keep on telling himself that he can’t be wrong and will keep on holding the position.This will lead to big losses. There is a popular line that cut short your losing position and let your profits run.If a trader keeps his ego, he will not be able to close his losing position early.
The other I had known is an investor.He believes in value investing.He is a Chartered accountant by profession.For the last 2 years, he was able to find multi-baggers which gave him 10 times to 20 times return in 2 years. He is able to find stocks which are undervalued at the current price and has the potential to rise many times.These stocks are typically small cap stocks.They are undervalued because they are not so popular among investors.He finds them before the capital flows into them.He then waits patiently for them to rise.And when the stock moves up to the level of fair value, he shifts to other stocks.He gets the advantage of compounding. This is nothing but money makes money and the added new money, in turn, makes more amount of money.
So what ever you do, what is more, important is learning things first.Some say the stock market is a giant casino.This is not the case.If you learn how to earn in the stock market, you will be rewarded. If you try to make a debut straight without knowing anything, most probably you will blow up your account.