Financial Daily from THE HINDU group of publications
Sunday, Mar 05, 2006
Financial Daily from THE HINDU group of publications Sunday, Mar 05, 2006 |
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Investment World
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Stock Markets Columns - Simple Economics Incremental sale method B. Venkatesh
The stock then declines to Rs 580 and later climbs to Rs 785. You sell your shares at a profit of Rs 70 per share. In less than 12 trading sessions, the stock moves past Rs 1,000. You consider it your bad luck that stocks always move up just after you sell them. If you do suffer from such emotions, take solace in the fact that you are not alone! But what is the remedy to overcome such emotion? Take Voltas. After the stock moves above your cost price, you may be tempted to capture whatever profits the market has to offer. To give way to such emotions, you can sell, say, 200 shares at Rs 785. That way, you lock-in to some profits and at the same time let the rest of the position run for a longer period to capture more gains. But what if the stock moves below your cost price after you sell 200 shares at Rs 785? To protect yourself from such losses, you may employ what technical analysts call a trailing stop loss. You may have placed a stop loss at Rs 515 when you bought the stock. After it moves up, you gradually raise your stop loss. For instance, you may choose to place a stop loss at Rs 775 after you sell 200 shares at Rs 785. So, if the stock declines, you will be able to sell at Rs 775 and pocket the gains. If the stock moves up, you can let your position run with a trailing stop loss. This approach, called the incremental sale method, helps you overcome the bad-luck syndrome. (The author is Head, Research, Navia Markets.)
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