Profit Booking is Important
One who’s been investing or trading in the
share market understands how important it is to book profits in the share
market. There are profit booking in equity shares, mutual funds, and intraday
trading. In short, booking profits is nothing but the realization of profits of
previously bought shares in a trade. Sadly, many individuals are not well aware
of profit booking and its importance in investing. This lack of awareness makes
it more difficult for them to secure their profits while exiting the trade. The
exit strategy is a crucial part of stock trading. However, it is not easy as it
may appear. A systematic approach and profit booking can
be very productive if put in a trade.
Due to a lack of awareness, many traders
face disappointments while trading. Today, we are here to discuss exit trading
and how important it is for those who are indulging in stock investing and
trading activities.
Importance
You know “booking profit is important” but
most people do not understand the selling part. In reality, it is not possible
to get the right price all the time. Here comes the profit booking in the
picture.
Everybody is familiar with the volatility
of the stock markets which are more volatile than before. Long-term investors
who invest in blue-chip stocks or large-cap stocks are assured of guaranteed
returns without any fear of volatility. But holding onto an entire equity
investment for the long-term can turn out to be a loss-making proposition. We
agreed that staying in equities for the long-term can be a way to increase
wealth over time but without booking profits could be risky. In simple words,
it cannot be achieved if the investor failed to book profits promptly. The
profit booking is necessary if the stocks in the portfolio are getting
overvalued. This will help in taking advantage of market volatility and make
good profits from overvalued stocks. Keeping such stocks for the long-term can
seriously affect your investments but booking profits allow you to make sure
that you benefit from the stock period.
Emotional attachment is probably another
major reason why many individuals failed to make good profits out of their
investments. They become so attached to
their shares that they just don’t want to sell the shares. It is no different
from the love of personal property, real estate, or car. Just because of this,
when it is the moment to book profits and exit the trade, we hold on to the shares,
which is wrong by the way! Just remember, you can always re-enter the counter
at lower levels.
Conclusion
By reviewing the importance and reasons for
profit booking in the share market, it is clear that one can secure profits on
trade by booking profits. But it is very stock specific. Most experts advised
to booked profits on a small portion of the investment so that one can book
profits on a certain part and let the rest kept to growth.
Nevertheless, it is up to you. There is no
harm to booking profits.
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