The article “how to earn profit in share market?” is in continuation to the earlier article titled “how to make money in share market?”.
Knowledge of share market is essential for an investor to earn some money from share market. One of the important factors that keeps its importance all the time is past trends. Past trends are important indicator (but not always) of the likely movement of share price. These trends can be used to predict the behavior of a stock, up to some extent. If an investor is able to find out the likely movement of price then this method can be useful for generating profits in short term.
So, how to earn profit in share market?
Like my previous article titled how to make money in share market?, here also I am going to disclose a unique technique to earn profit in share market. There is not a specific name of this method, as this is not a recognized method. But for the sake of memorizing the name, you can call this method as “Purchasing a stock at 3 levels”.
How to use this method?
Search for such a stock whose price is going to be high for that day. It is not that much tough as we think and one can easily find out the likely movement of the stock for intraday.
If your analysis says that yes, the stock of XYZ ltd Company will go up then it’s time to follow on this method otherwise you need to find out another stock whose price is going to be up for the day.
What one needs to do after finding out such a stock which meets the above criteria is to purchase that stock at current market price to earn profit for the day.
- Purchase the share only if you think it will go up and will give at least 1-2% return for the day in normal circumstances.
- Do not purchase a large quantity of that stock (Reason for the same is explained in the coming section).
Wait for the movement when it goes down by 1-3% and then purchase a larger quantity of that stock (In case you find that the price of the concerned stock is not going down and going high then this method is not more of worth for you and in such a case you can sell your share at some higher price to earn profit from that stock).
Note: If price goes down, you have to make sure that the fall in price is temporary and it will reach at its earlier position (where you purchased it first time).
Wait for the movement when the price of the stock further goes down by 1-3% and at that movement you need to purchase a larger quantity of that stock once again.
Note: You can skip this step if you find that after purchasing the same stock twice, its price is going high and you need to follow next step.
Now when it reaches at your expectation level or say a little bit down than your expected price, it’s time to sell all the shares you have purchased till now (shares of the concerned company).
How this method works?
Suppose you analysed a stock whose current market price is INR 100 and you expect it to increase by 2-2.5% for the day. Let’s assume that you purchased only 1 share at current market price. Your total investment for the time is = 1001 = INR 100 This method says that if price goes down rather than going up, you need to purchase more shares. Now let’s say price has goes down by 2 percent and reached to INR 98. Now it’s time to purchase more shares and you purchased 2 more shares at this price rate. Your total investment for the time is = (1001) + (982) = 296 And total no. of shares = 3 The price of the share is further going down on temporarily basis and if we follow this method, we have to buy more quantity of the same stock at this reduced price. Assume that price has reached at INR 96 and you have purchased 3 more shares at this price. Now, for the time, your total investment is = (1001) + (982) + (963) = 584 And total no. of shares = 6 Now it’s time to calculate your profit assuming that at the end of the day the share closed at 101 (below your expectation level).
On the other hand in expectation of 2% profit, you have purchased 6 shares at current price, your profit would be:
Why do we purchase small quantity at first time?
A general question that comes in mind is that why do we purchase less no. of shares initially and then go for larger quantity at a later stage? The answer of this question is simple. It’s because we expect only 1-2% increase in share price and for such a small return (as compare to your investment); you cannot invest all of your money for the day long. So if it is confirmed that the price will go up then why don’t we purchase the share at lower price to increase our profit.