Booking profits is the most important part in the trading cycle. The profits that are accruing can just be known as a liability. On the other hand the profits booked finally turn into our assets. The cashed out balance is more important than the credited balance. There are certain important things to keep into note while booking the profits and exiting the positions. They are :
Never Get Affectionate With Position
The common mistake that traders and investors do is getting too affectionate with a temporary position or wrong call. If you make a wrong decision regarding one trade don’t be a stickler to it rather shift positions and keep making investments elsewhere. The best plan in those times is to invest into stocks of the same sector. This would provide better chances of profits and increase the probability of perfect selection.
Why is it said that investors and traders get affectionate to positions ? The reason is their ego and belief of never going wrong. Once they take position and if they suffer loss they cannot believe their failure. Even when it is too late they hold onto the positions and suffer the bloodbath. This results in bad decisions in other stock pickings as well and affects the portfolio. Hence never get attached to one stock and keep booking profits at desired levels.
Buy / Sell Limit And Stop Loss
The most important feature in the trading system is the buying and selling limit, one can set these limits as per the support levels indicated by the market. This gives two benefits. One is the relief from constantly monitoring multiple trade potions. Another is keeping the losses limited as automatic trades have no emotions attached to the positions. SO it is not only about making profits in each trade. What is more important is the fact of moving on from one position to another when the time comes. If a person can handle shifts in positions he can be a good trader in no time.
There is a famous saying in the market that if you invest in 10 stocks, 8 of them are going to be failures. But out of them if you have done your homework correctly 2 would become multibaggers. These two would revive every loss made and give you returns as per your expectations. Hence exit the undesirable positions with Stop loss (Bu stop and Sell Stop) and enter new positions quickly.
3% – 5% Rule For Trading
The trading method of stocks persists a very simple rule. Take 3% profits per day and exit the positions. This calculation may be small for one day but it gives amazing returns at the end of the month. Supposedly you invest 1000 Rs. per day you get 30 Rs in return which is just 3% right. But at the end of month such returns every day cuckold give you almost 30% – 40% returns barring the losses made. As even 1.5% return in Indian markets (with high volatility) per day can give 30% returns in 20 days on just the initial investments. This count does not even involve the profits booked and invested again. Hence trade wisely and exit the positions on 3% hit.
In case if the stock is showing better intraday potential, start offloading shares in percentage of holding. This would keep the returns intact and get the profits booked at even price ranges.
Exit At Pattern Reversals Or Use Average Out Method
Average out is the commonly used method whenever a person is revealing form losses. Supposedly you have not put out Stop loss and the share prices have tumbled, for intraday trade you can take position at lower price on margin and get a good average price of the investments and holdings. At the end of day or trading cycle you can exit the position. This would give benefit of having shares at lower price than before. Capable Traders usually prefer to do doubling of quantities as well at button prices to get a median price range for the holdings. Hence minimizing the losses.
The major identification for stop loss is the support and resistance levels. These levels are always acute because the entire community relies on them for their contracts. Hence millions of contracts are hit across these levels. This causes pattern reversals and it could be seen in graph and candlesticks pattern of time frame with 1 minute or 5 minute. Hence trend reversal and support levels together could help set up proper stop loss points.
Long Term Targets Above 25% – 30%
The investors should invest in share with a proportional gain ratio of minimum 30%. The reason is the mutual funds end up giving more than 19% returns annually and shares being more risky tend to give more returns. Hence without such rates of return on investment one should not invest for the long term. Rather one should select the mutual funds or lending of ventures or SMEs so that they could at least earn a decent 12% – 15% return on investments.
Taking Investments Out And Keeping Investments In Shares
For investors the most important thing is ploughing back of profits. Once you warn about sizable returns on a stock and if the company has potential, keep it in the portfolio. Rather take out of the invested amount and keep the profits in it. This would benefit you with no loss and better opportunities.