The Hindu Business Line : Trading Tips

Though it may be always tempting to buy a stock that is falling with an intention to lower the average cost of acquisition, such a practice should be avoided. This will be tantamount to throwing good money after bad.

Always have a stop-loss and an exit price clearly defined before making a trading decision.

There are several methods to arrive at stop-loss levels. If you are unable to identify a logical or reliable stop-loss level, use a fixed money-based stop method, which fits into your psychological comfort zone.

Never hold on to a trading or investment position that has moved past your psychological zone of comfort.

If you are not disciplined to cut positions on the breach of stop-loss, it could turn out to be a psychologically arduous task to cut those loss-making positions when prices keep moving against you.

Always take care of your losses and profit would take care of themselves.

Periodical profit-booking and re-entry on fresh "buy" triggers are crucial aspects of success in stock market investing.

There is nothing wrong or inconsistent in buying a stock at slightly higher levels after having booked profit earlier.

Keep track of stocks you find are in a long-term upward trend and take positions on fresh "buy" triggers. The key aspect is to ensure that the long-term trend is intact and there is a valid reason to take fresh exposures.

Even after the stop-loss is hit, investors should not ignore the stock they have been tracking. It may well turn out that the stock could reverse trend and get back to the target zone envisaged earlier.

The stop-loss might have been hit owing to either an incorrect stop loss or a change in the short-term trend. The stock price may reverse at lower levels and manage to move to the earlier determined target zone.