Profit Taking

What is Profit Taking?

Profit-taking is a term used when the investors sell the assets which they possess mainly shares and securities to the market when the price has risen. It can give a negative impact on the investors who are not selling shares when the prices rise. The aggressive investors wait for the desired percentage hike in the prices of the shares and then he opts to sell the shares or securities in the market.

Explanation

Profit-taking is a step towards earning the desired profit from the shares or securities which the investors buy at some point in time. The investors wait for the hike in the price of the stock or shares and when it will be beneficial for them to sell that to take the profits from the same. This can negatively affect investors who are not aggressive in their investments. It can create discontentment among other unaware investors who fail to sell their stocks or shares when the price rises. It should always be noted that it is a temporary solution to the investors who want to have gained from the sale of the stock and that stock can be possibly sold out in a very short span of time. The investors could have kept the stocks or shares for a longer period of time before selling, but the investors who want to convert the shares into liquid cash with some profit element also have to opt for such a phenomenon.

Profit Taking

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Source: Profit Taking (wallstreetmojo.com)

Profit Taking Strategy

This strategy can be different for different stocks or shares. Every strategy made and followed should be different from each other. In general, this strategy should be to know when to sell the shares or stocks in the market to earn maximum profits exactly. Most of the investors who are not aggressive investors don’t have any strategy to be followed to take the profits, but some investors define the strategy, and that helps them to earn maximum profits. Nowadays, traditional investors are also moving towards the short-lived strategy in the share market. They buy the shares when the prices are low and study the trend of that security and then sell the shares of stock in the market when the price rises. These types of investors earn short term profits.

How to Take Profit from Trading?

There are many strategies made and followed by investors who are very active in trading. They already set their targets of the desired profits when they opt to buy the stocks or shares of the company. It is a belief that the investors can possibly make small profits if they continue to take the profits for the shares on a regular basis rather than waiting for the harvesting time for the shares when they can achieve great returns. Although it is advisable to wait for the returns, the investors are nowadays short-lived in the market, and hence they take profits from the shares very early.

The trading in shares is also a king of gambling game when the prices may go up or down without any notice to the investors, and hence it can be a good idea to derive the profits at the early stage if it is beneficial to do so. Investors should take a step forward in understanding the stock movement, which can have an effect on their share prices; by following this, they can achieve the desired profits from the trading of the shares or stocks.

Rules

The investors are advised to understand the market and the price movement of the shares in the market. The basic rule is to get a 20% to 25% hike in the prices, and then the investors are advised to sell the stocks or shares and if the prices are not hiked with the desired percentage, the investors should not sell the stock but should wait for some time to get the maximum returns or profits.

Benefits

  • When an investor opts for this strategy, it can get quick and desired profits in a short span of time.
  • Risk is lower in this technique because the liquid cash is achieved out of the shares in the planned time.
  • Some investors can do market research and then buy back those shares in the future since they are now aware of the trend of the price movements of those shares of the company.
  • Short-lived investors can easily enter and exit the stock market, and they will get themselves risk-free by encashing the shares before the time to get rid of the market fluctuations.
  • Shares and stock markets are speculative markets; therefore, it is a great opportunity for the investors to take their profits when the prices are high of the particular shares.
  • The trading planning to minimize the risk of loss from the shares will increase the investors to take the profit after achieving a certain percentage of profits.

Limitations

  • This mechanism hurts the sentiments of those investors who fail to take profit when the price of their share has risen.
  • Profit-taking discourages investors who can invest in the shares in the long term.
  • This method always promotes the investors to take profit within a short span of time; rather, the traditional investors are ready to keep their money in the market for a longer period of time to earn more returns.
  • The share market speculation may give huge returns to the investors only if they wait for the harvest time of their shares, but the investors who follow the profit-taking are not interested in doing so.

Conclusion

The activities involved in the trading of the shares and securities are different for different stocks of the company; the investors should carefully invest their money in the share market as it is a speculative market. Those investors who are short-lived in the market can opt for the profit-taking strategy to earn some assured profits with lesser risk when they involve their monies in the market for a longer period of time.

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