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.