From time to time you see some or large profit in certain scrips you are holding. Your start wondering whether to book profit or hold on to the scrip. If you book profit, the scrip may run up, if you hold, the scrip may erode gains till date. What to do ?
There are two schools of thought - one which says you should take profits quickly and the other one which says that only the big profits in certain investments would really make you rich. We all get confused. Which one should be our philosophy.
I have realised that one line quotes and phrases from successful personalities are misleading many a times insofar as their application to our life is concerned. I have also realised that two different answers to the same question can be right and work for us at different points of time so long as the same are coherent with the our overall philosophy and based on circumstantial factors affecting the question.
So what is the overall philosophy in financial markets ? Simple ... Making money for yourself. Does it really matter you should sell early or hold on for a long time ? No, it should not.
Now, how do you decide whether you should book profits or hold on to your scrip. The answer is pretty simple. But for that you have to know basic technical analysis. Is the scrip trending up or is it in trading zone or it is trending down ?
A scrip which is trending up should generally be held till the trend breaks. But this should apply generally if you have entered when the scrip was consolidating or when the upward trend had just started. How would you know that ? I will deal with that separately in my later blogs.
In case you have entered a scrip when the same had risen significantly, then you are better off taking profit when the scrip has completed its next upmove or has shown significant gains in short time. Holding for further gains (a sign of greed) can be lead to financial loss, many a times.
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