Normal investors who just enter the stock market to earn a significant return, and becoming full-time traders is very usual these days. However, in times of crisis, it is difficult to hang onto your investments, your stocks. But doing so will reap you the benefits you never expected in the first place. Take all the time needed to do the technical analysis, and then start trading in the targeted stocks, but once invested, sometimes it is beneficial to believe in the business and hold on to them to earn a lucrative return.
Since the beginning of the bull trade, if you are owning the stocks, it is nothing less than commendable for you. Taking here the example of the Nifty 50, which went up more than 50% in a few years. However, the market will not always behave as per your expectations, and hence below are the ways to protect our gains.
Diversification of the portfolio
Investing almost all your capital in just one overvalued stock will lend you into trouble as the stock market is the most uncertain place out of all. Indian stocks have performed so well in the past few years that investors are blindly trading in those shares. In reality, the other groups of stocks have begun to do well and the prices are fair, which makes it the best time to invest in them. Diversification of a portfolio is a very healthy habit and one which saves you from misfortune.
Hedging the bets
You have to plan a strategy when you are putting a bet on some risky trade, and for that, some counterbalance is needed to overcome the possible loss. This hedging of the bet is the outcome of many concerns that the long-term traders have and want to save themselves from it. It is an insurance policy, requiring a premium in many of the cases, or a part of your profit from that bigger bet. Also, one of the ways to hedge is buying put options. Options are good when your bet is right and you get the chance to sell the options at a set price, more than the current lowest price. This gives you a profit. Hence there are few ways of hedging your bet against the bigger investments that you are betting at.
Trimming the stock market winners
Stock market experts say that it becomes wise for investors to sell off a portion of their investment when the stock prices go up. The trader shouldn’t just buy and hold on to the stocks even if the performance is really promising. This is because there is a risk of the price fall even for the higher valued stocks. So whenever there is a chance of earning a nominal profit, the investor shouldn’t hesitate to trim his stock a bit and balance the portfolio.
You have to be careful about how you can protect your market gains.
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One Reply to “HOW TO PROTECT PROFITS IN THE MARKET”
Hedging is very important concept while trading in stock market and really helps to control the loss when your trade doesnot go in your way. I have experienced it while trading Nifty, Bank nifty and Reliance future in Jan 2022 month. learned my lesson very well.