Rises and Falling Share Prices and How to Counteract Them.
You just bought a stock and the Price Falls and You Sell and the Price Rises. Does this Sound Familiar?
One trader say’s “I bought “XYZ Company” at $5.00 and immediately after I bought the stock the share price dropped to $4.50.” Another trader comes with yet another version “I sold “XYZ Company” at $5.00 and it went up to $5.55 the very same evening.
So what is the solution?
You could buy more shares at $4.50 and reduce your overall buying cost. But this should only be done if you believe in the fundamentals, the management and the company’s future prospects.
But to do this you need to keep money ready on hand at all times. So with whatever money you have decided to invest,split it into two parts. Put 50% cash aside and only invest with the other 50%. So if need arises to buy more of any stock when the price falls you already have ready cash available put aside.
If you did this you might have bought say 200 shares of XYZ Company at $5.00 and 100 shares at $4.50 Then if the share price goes up to $6.00. Sell only 100 of the shares.Then if the price further rises then you still have some shares to sell. You can still stay in the rally to make more profits if the share price continues upwards .
Now in the next scenario you sold the shares and the price went up. The solution to this is to never sell all of the shares at one time. Sell only 50% of your shares.So if the share price does go upwards again in the future you will still have the other 50% left to sell and make more profit.
Remember that you have to factor in your brokerage costs as this impacts on your profit margins. So make allowances for this in your exit calculations.
Remember that the Golden Rule is to first do your own research and analysis of the stock before investing and never buy on tips. Also investing only in companies which declare regular dividends every year.This way you can be sure that you are not investing in unprofitable companies.
As you well know every Stock Market expert advises you to do your stock analysis and research before investing in the stock market. But nobody ever tells you how.Until now that is.
I wish you profitable trading.