Everyone invest in the stock market because they want to make money. But many times that does not happen because stock prices start falling and investors start losing the money they have invested. So, how do you guide against losing money in the stock market? Here are some tips from the book “101+ tips for the smart retail investor”.
Determine the upper limit you will want to take your profits and the lower limit you want to cut your losses. For example, you can decide that you will take your profits when your stock moves up 25 percent and cut your loss when the stock drops 10 percent. Also draw a defensive line at which you will sell a stock if it falls below. Your best strategy is to have a defensive line at which you will not allow your stock to fall below. This helps you cut your losses. Move the defensive line upwards as the stock appreciates.
Do not sell in a hurry
Beware of selling in bearish market; it may just be an emotional reaction to a disappointing result. When everyone is running, hesitate to join the race, it may just be the best opportunity for you to hold and even buy more.
Obey the 20% rule
Any stock that rises above 20 percent of your buying price should not be allowed to fall back into your loss zone. This will ensure that you will maximize your return on a stock and avoid unnecessary losses.
Be careful making new purchases when the general market is at the beginning of a bearish trend. This is because there will be better buying opportunities at the bottom of the bearish run rather than at the top.
Buy at the right time
The object of buying a stock is not just to be right but to make big money when you are right. So always try to buy at the right time
Hold longer when you see the bulls
Hold longer in a bullish market. Be defensive in a bearish market. The longer you hold in a bullish market, the higher the returns you will make, and selling fast in a bearish market will cut your losses.
But be bold
Be bold to sell your least attractive stock for a more attractive one when the opportunity comes along. Like a garden, never fail to weed out non-performing stocks from your portfolio
Keep it clean
Keep your stock portfolio clean like the garden, take out the weeds as soon as you notice them before they kill the flowers. This simply means take out the non-performers before they eat out the profits from the high performers.