Tuesday, 3 February 2015

Trading & Investing


There is a time and place for everything including trading in the market. Volatility is NOT a good time to trade. We can understand that some traders may be frustrated about not getting any trading ideas. But, we should remember the basic purpose of trading: It is to have a stream of income. Adventure and excitement are NOT meant for traders.When markets are choppy and volatile, we should step aside.


How to manage a sudden reversal in market sentiment?

Active Investors must have a plan to manage a sharp and sudden decline in prices of a stock, which has been moving up steadily.

Here are some suggestions for managing such sudden events:

1) Always maintain diversification with any individual share not having more than 10% of your total portfolio. If 10% of your active investment was in a stock, then 20% loss would be 2% of your portfolio, a number that is acceptable.

2) If you are trading in a stock, then follow your stops. The stop loss would have been triggered much before the 20% decline came about.

3) If you are an active investor: ask yourself – has the basic reason to buy the stock changed? If not, stay with the stock. If the stock starts underperforming, you will get an opportunity to exit on minor rallies. Do not exit on a panic.

Corrections are periods which require a lot of patience. Investors should understand that they are paid for taking risk, as well as for showing mental strength in difficult times.

(excerpt from an article on internet )

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