How To Make Money in Stock Market (Pt. 3)

Understand how money is actually made in the Stock Market through price movement, profit and loss, long and short positions, and the hidden concepts most beginners ignore while entering the world of investing and trading today.

Introduction

Welcome back to Part 3 of the Stock Market series.

In the previous blogs, we understood what markets are, how the Stock Market works, why prices move, and how demand and supply influence price behaviour. But eventually every beginner reaches the same question:

How do people actually make money in the Stock Market?

Most people think they already know the answer. They repeatedly hear phrases like buy low and sell high and accept them without questioning further. But the moment we begin asking deeper questions, things become much more interesting.

Suppose you bought a stock at ₹100 and today it trades at ₹500. Have you already made ₹400 profit?

Most beginners immediately say yes.

But the answer is not exactly that simple.

Understanding why changes the entire way you think about markets.

What Does Profit Actually Mean?

We use words like profit and loss almost every day, but very few people stop and think about what they actually mean.

Profit fundamentally exists because there is a difference between two prices. There is a price at which you enter and there is a price at which you exit. The relationship between these two values determines whether money was made or lost.

But before understanding profit, we first need to understand price itself.

Price is not simply a random number written beside an asset. Price fundamentally represents agreement between buyers and sellers. Buyers always want to purchase at lower prices while sellers want to sell at higher prices. Somewhere between these opposing interests, both sides agree.

That agreement becomes price.

Almost the entire financial world sits on top of this simple idea.

Why Most Beginners Misunderstand Profit

Imagine buying a stock at ₹100 and after some time the stock reaches ₹200.

Most people instantly think they have made ₹100 profit.

But nothing has actually happened yet. The number on your screen changed, but reality didn’t. Similarly, if the stock falls to ₹50, people immediately think they lost money. Again, nothing has actually happened.

The transaction remains incomplete. This becomes one of the biggest misconceptions beginners carry into investing.

Why Profit Doesn’t Exist Until You Exit

Profit becomes real only when a position is closed. This process is commonly called square-off.

Square-off simply means ending your current position through the opposite transaction. If you bought earlier, you close by selling. If you sold earlier, you close by buying.

Until this happens, profit and loss only exist virtually.

Suppose you bought a stock at ₹100 and now it trades at ₹500. Your screen may show ₹400 profit, but imagine the market crashes tomorrow and the stock returns to ₹100.

Suddenly that profit disappears.

The market showed you a number, but it never actually gave you money.

That is why people differentiate between unrealized profit and realized profit.

Can People Make Money When Prices Fall?

Many beginners think money can only be made when prices rise. The logic sounds obvious: buy low and sell high. But markets work in both directions.

Imagine reversing the process. Instead of buying first and selling later, what if someone sells first and buys later?

This initially sounds strange because it feels like selling something you do not own.

But this is exactly how short selling works.

Suppose a stock trades at ₹100 and you believe its price will fall. You borrow the stock and immediately sell it at ₹100. Later the price falls to ₹50 and you buy it back.

You sold at ₹100 and bought at ₹50. The ₹50 difference becomes profit.

Long Position

A long position simply means buying first and selling later because you expect prices to increase.

Short Position

A short position means selling first and buying later because you expect prices to decrease.

Investment vs Speculation

Now another important question appears. Does everyone enter the market with the same objective?

Not really.

Some people enter the market with patience and long-term thinking, while others enter hoping to capture short-term movements.

This creates the distinction between investment and speculation. The difference mostly depends upon time horizon and approach.

Types of Investment

Investment usually involves holding securities for longer periods because investors believe the business itself will create larger value over time.

Based on duration, investments can generally be divided into three categories.

Short-Term Investment

Short-term investments generally involve holding securities for less than one year.

Mid-Term Investment

Mid-term investments usually involve holding positions between one and three years.

Long-Term Investment

Long-term investments generally extend beyond three years.

This is where one of the most powerful ideas in finance begins working:

Compounding.

Returns themselves begin generating additional returns, creating accelerating growth over larger periods of time.

Types of Speculation

Speculation focuses more on short-term price movements rather than long-term value creation. People enter speculative positions hoping to benefit from temporary market movements.

Speculation can broadly happen in different forms such as intraday trading, swing trading, and positional trading.

Intraday Speculation

Intraday speculation involves opening and closing positions within the same trading day.

Swing Speculation

Swing speculation usually involves holding positions for a few days or weeks in order to capture smaller market movements.

Positional Speculation

Positional speculation generally involves holding positions for weeks or months while expecting larger price movements.

How Do People Analyze the Market?

Once people understand markets and price movement, another question naturally appears:

How do people decide what to buy?

This is where analysis enters.

Fundamental Analysis

Fundamental Analysis focuses on understanding the actual business behind a company. People study things like profits, growth, revenue, financial health, and future potential.

Fundamental Analysis attempts to answer one question:

Is this business actually valuable?

Technical Analysis

Technical Analysis approaches things differently. Instead of studying the business itself, Technical Analysis studies price movement, trends, charts, and patterns.

It attempts to understand market behaviour and timing.

Fundamental Analysis tries to understand what to buy, while Technical Analysis often helps determine when to buy or sell.

The Core Idea Most Beginners Ignore

Most beginners become obsessed with predicting which stock will rise next.

But prediction itself is not the deeper game.

The Stock Market is fundamentally built around positions, transactions, time horizons, analysis, and human behaviour.

Once you stop seeing prices as random numbers and start understanding the mechanisms beneath them, the market starts becoming much easier to understand.

And that is where real understanding begins.

So in the next blog/video, we will dive into the world of analysis of markets.

Ahtisham Asif Tantray signing off!