Traders and investors in stock markets are often advised to book profits immediately ie to secure their profits as soon as possible. But most people say that they are long term investors and will not book profits yet. While it is important to be a long-term investor, it is more important to have a long-term investment strategy. You can save yourself from loss by booking profits immediately, so information is being given to book profits on stocks through this article.
What is profit booking?
Profit booking is also called taking profit. Liquidating holdings to capitalize the profits made through stock is called profit booking. This is important if you want to benefit from investments made in the stock market.
Variable market share
One of the main reasons for booking profits in stock markets at regular intervals is that stock markets are volatile. You can take advantage of volatility to book profits. You can understand this through an example of how the volatility of stock markets helps you to earn profits. Suppose you bought 10 shares of Kotak Mahindra Bank Ltd. on 21 November 2019 at an average price of Rs 1,570. You sold these shares on December 18 at an average price of Rs 1,720, giving you a profit of Rs 150 per share. You re-entered on 8 January 2020 at the rate of Rs 1,650 per share. If you consider yourself a long-term investor and do not book profits, you will lose the opportunity to make a profit of Rs 1,720 – 1,650 = Rs 70 per share. In this situation you should be confident that Kotak Mahindra Bank will regain the 1,720 level and go even further. This will be a long term strategy.
Keep a vigil on the stock market
Your passion and feelings are the main reason for losing money in the stock markets. Over time, you start thinking of making maximum profit through stocks and avoid selling them. This can be a big mistake. Control your emotions in the stock market. If you think this is the right time, be prepared to sell shares and make profits.
When to book a profit in stocks?
- It is believed that a company has launched a new product, which is a super hit or this company has contracted extensively, so people start buying the stock of this company. Raises stock prices due to excessive buyers and purchases. In this situation, many people reach their set goals easily and they sell shares and book profits. This situation causes a temporary slowdown in stock prices.
- Profit booking can be done in case of a sector similar to the company. This is when a good news comes for a sector, just like a company.
- The exit of economic data is a common reason for profit booking. As soon as the news comes that there may be a decrease in GDP, then you are ready to sell shares. You benefit from a share only when you book a profit to make a profit.
Thus profit booking is done on the basis of market fluctuations. You can also make profit booking keeping in mind your risk capacity, so that you will not get lost.
How to book profits in stocks?
Suppose you have 200 shares of ABC company, which you bought at a price of Rs 100. The current market price of the shares is Rs 140. You decide to sell the shares for Rs 140. After selling the shares for Rs 140, you will actually get a profit of Rs 40. This is the booking of profits.
What happens if the prices of the shares you hold decrease?
Suppose you sell 200 shares of company ABC at a price of Rs 100. Then after a few days the share price becomes Rs 60. If you buy these shares for 60 rupees, you earn a profit of 40 rupees.
Profit booking for disciplined investor
Suppose you bought HDFC AMC shares for Rs 1,500 last year. You have a target of Rs 1,800 on HDFC AMC shares. In such a situation, as soon as these shares touch this target, you must sell them. It does not matter that HDFC AMC shares can go up to Rs 2,000 or more. Because just as you maintain discipline to reduce investment and loss, you should also maintain discipline in profit booking.