Since the advent of internet revolution that has deeply impacted the stock market operations, the number of investors has increased substantially. You can not expect that each investor is a perfect strategist in the trades and goes by research and analysis. For many of them, intuition is the only selling strategy. Such people do impulsive buying and selling and they are push-on investors. They do what the majority of the investors do, and on occasions, do something more-and get into trouble promptly. Share market does not award the investor on the basis of emotions. It takes note of the intelligent investor who knows the art to protect gains and cut losses. Having no selling strategy means having no strategy at all and such a situation is ripe to incur losses with the possibility to lead one to bankruptcy.
Depending on the size of your portfolio, you need the services of a share broker who can watch the shares and give you timely recommendations. The modern systems have made it possible for the broker to automate the monitoring and calculation processes and give advice on the basis of conditions that rule the market, whether pleasant or unpleasant ones. If necessary, you get recommendations to sell the shares, taking into account the economic considerations with no scope for play of emotions.
The ultimate objective of all strategies is the same-to protect gains and to cut losses! Every strategy has is advantages and disadvantages.
There are no proven mathematical methods to maximizing and protecting your gains and reduce losses, at all times. But methods are there to protect your portfolio most of the time, if you apply them well in time. Timing is the essence of any strategy. One such method is The Trailing Stop method. It deals with the current share price and the stop selling price which represents the time at which to sell the shares. As per this method, the stop selling price is raised when the share price goes up, but holds it when the price goes down. If it falls to the point below the stop selling price, the investor is given the recommendation to sell the share immediately. In effect, the strategy limits your loss to a pre-determined percentage of the investment, and at the same time, with no limitations as for your income.
The focus of the traders in the exchange is to do right trades at the right time at the right price. This is the ideal situation in which every trader or investor would like to find himself placed. But that is not the end of the story. Assuming that you are with the right share, what is important is getting out of it, which in the final analysis, determines the benefits of the trade.
Let us illustrate this by an example. Suppose the shares in your portfolio are soaring and it is up by 75%, on a given day. The next question is what have you done to protect your profit? This paper gain could be easily be wiped out within a matter of days, unless you have the appropriate exit strategy with stop losses in place to protect a big percentage of the gain.
Extraordinary care is required in a volatile market to protect profits, as winning trades can immediately turn into losses. A well thought out exit plan is the savior. Without this, the amount of time that you spent in picking the right share and the optimal entry point has no meaning! With no proper planning, all supposed benefits are nullified.
You are the master of all that you survey till the moment of entry. Till this point you are in control. Thereafter the market forces will dictate their terms on the shares. You have lost control but the situation is not hopeless unless you create a bad situation. You can certainly minimize losses and protect gains through Stop Losses.
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