Please read the first part and second part before you go further.
Q: What about the other way around when you are making money, we often hear that people bought at Rs 100 and sold at Rs 110 and the stock moved from Rs 100 to Rs 200, they made small chunks of it but could not hold for the entire rise or doubling of the stock. Is it also to have that maturity to say that I am not playing for small gains and maybe something good is happening out here and I will play for a bigger game?
A: Yes exactly, they need to define, at the end of the day you have to define yourself, you have to define your system. Just as when people trade for Rs 10 and are able to take Rs 50 hit on the downside, similarly it should not be the other way round that I am ready to stand for Rs 50 on the upside, but my stop losses are very thin, so immediately the stop losses get triggered or there about. You really have to have great perspective in terms of time, in terms of entry, exit, stop losses and there’s always this ratio. You cannot have a stock that is a sure short and risk-free. Then why are you in the equity market? You should be having money in FD because that’s the only sure short method. So there has to be a balance and there has to be the risk-reward profile and it maybe 2:1 or 3:1 but the ratio always has to be there. Continue reading →