No investor would like to buy securities or stocks that may see a downfall in prices in the future. The main objective of any investment is to earn a profit, but at the same time, one can not ignore the probability of loss in the stock market. Hence, we cannot remove the losses but find ways to minimize their possibility.
One of the main reasons why investors experience share market losses is poor investing practices. Whether you are choosing the wrong stocks or not having a proper plan, these can all impact your investment. There are some ways you can lower your share market losses. Two of the most important things to remember when investing in shares are- diversification and risk mitigation. Risk mitigation means reducing risks by keeping track of your investments and rebalancing your portfolio regularly.
Now, let’s understand some strategies to minimize/ avoid losses and boost profits, while investing in stock markets.
STOP LOSS STRATEGY:
With this strategy, you can place a stop-loss order to buy or sell specific stocks when they reach a particular price level. For example, you bought stocks of company XYZ at Rs 100 per share. To control your losses, you can enter a stop-loss order for Rs 95 per share. So, if the price falls to Rs 95, your shares will be sold off to avoid any further losses. You can also set up a trailing stop loss which is especially important if you wish to retain the gains you have made. In trailing stop loss, the stop loss level moves up as the price of equity goes up.
IDENTIFICATION OF ENTRY POINT:
It is necessary to confirm a trend before entering a stock in a rush. Identifying a breakout can seem to be the perfect entry point. But it is important to first study the trend properly rather than making decisions in a panic. Two things must be taken care of while deciding upon the entry point :
IDENTIFICATION OF EXIT POINT:
It is equally important to identify an exit point for a stock, to close a position. Exit points are planned to minimize losses or achieve set profit targets. You may simply use a market order to exit from the stock at any point or set a stop-loss order if the trend is moving in an unfavorable direction.
IDENTIFICATION OF SELL SIGNAL:
You must be alert to catch a sell signal that tells you it is time to sell off the stocks. A sell signal is a condition or a price level beyond which the investor may incur losses. It is based on fundamental and technical analysis of a stock that includes many crucial parameters derived from the company’s financial statement. It is important that the investor is watchful of these signals and act appropriately. A few things you need to examine are:
DIVERSIFY:
Diversifying is always good by investing in various stocks from different industries, market capitalization, and other relevant factors. The selection must be in such a manner that if a stock falls in a particular situation, the other stocks in the portfolio stay unaffected and can at least cover up the losses.
Diversifying your investment portfolio means having a mix of different investments to reduce the overall risk involved. It might be tempting to invest everything in one stock, but it is critical to remember that this will likely result in higher losses over time.
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