There are many tips on the internet. Tips include tips about this, tips about that, and tips on how to make money in the stock market. But alas! There is no royal way to invest. Stock market investing requires planning and discipline.

Many people have made money on the stock market, but many more have lost it. Even the most experienced investors cannot answer all of the questions that arise in the stock market. Structured approaches are one way to deal with this problem.

How to Invest Wisely for Beginners –

This segment will provide some important stock market tips for newbies. We do not refer to stock market tips as the market does, nor do we recommend that you rely on them.

Here, we will focus on investing tips in the stock market using a structured approach based on rules.

Stock market trading can be a great way to invest if you know the basics. It’s not rocket science! You can call these tips or rules!

1. What is your expected return, and what level of risk are you willing to take?

This is a difficult question, but it is the beginning. The majority of people think that higher risks will lead to greater returns. This is not the case.

Higher returns are associated with higher risks, but you cannot be assured of higher profits by simply taking on more risk.

You should have some ideas clearly in mind. How long will you wait to buy a momentum stock? What is your tolerance for the downside? When you purchase a value stock, the question becomes how much return you expect and how much correction you can tolerate.

The basic rule in markets is that book profits are always superior to book profits.

2. What is your return per unit of risk? This may seem very complex, but in reality, it’s not. Say you want to make a long-term trade in Infosys. Your reward-to-risk is 1,25:1.00 if your price target is 10 per cent higher and your stop-loss is 8 per cent lower. This is not very clever because you’re not compensated for your risk. You should be compensated both for the risk that you take and for the time it takes to get the return. There is no point in waiting two years to get 20% returns. You could probably get the same returns by investing in debt funds.

Basic thumb rule: trade or invest in markets that have a positive ratio of risk to reward, which can be as high as 2:1. Then and only then does investing in stocks make sense.

3. Don’t keep all of your eggs in one basket

Warren Buffett made his entire fortune in just a few stocks, and you may do the same. You cannot, however, bet your whole money on a small number of stocks that could outperform. Diversify your portfolio across 15-20 stocks to reduce risk to a great extent. Your risk increases the more concentrated your portfolio is.

Spread your risk among stocks, themes, and asset classes. Spread your risk among large, mid-cap and small-cap stocks.

4. Understand what you are doing before you trade and invest.

Peter Lynch, the legendary founder of Fidelity Fund, once said: “Your investment thesis must be so simple you can explain it with a piece or chalk.”

Understand the stock and why you’re buying it. You can justify your trading based on fundamentals or technical charts.

Resist the urge to follow the tips and recommendations being thrown about by so-called Finfluencers. They may do you more harm than good.

5. Market outsmarting never works consistently

This should be the foundation of trading. Your job as a trader is not to outwit or beat the market. Even the best traders are aware that they cannot outsmart the market. Any veteran trader can tell you that your job is to interpret the signals coming from the market and then form your trading positions accordingly.

Markets are never right or incorrect. You are responsible for interpreting the signals.

6. Deciding to stay out of the market can be a good one.

Many traders and investors start out thinking that the stock market involves only two decisions: what to buy and what to sell.

One more decision to make: when to leave.

Many people think that staying out of the market is inactivity. However, you’d be surprised to learn that many of the best investments are made when other investors burn their fingers in a volatile stock market.

Also, you have enough capital to take advantage of the falling market prices. You would have made the most money if you had stayed out of a market that you didn’t understand.

7. Focus on risk instead of returns.

Smart investing is all about managing your risk and protecting your capital. Remember, you control risks; you do not control returns. Concentrate on what you have control over. This is the golden rule.

Remember, nothing compares to the real thing.

You can simulate both risk and returns. You will never fully understand trading unless you watch the losses and wrong calls. Start investing now!