One who’ve been investing or trading in the share market understands how important it is to book profits in the share market. It is also known by the name ‘Profit Booking’. There are profit booking in shares, profit booking in mutual funds, and profit booking in intraday trading. In short, booking profits is nothing but the realization of profits of previously bought shares in a trade. Unfortunately, many investors and traders are still unaware of the importance of profit booking in the share market. This lack of awareness makes it more difficult for them to secure their profits while exiting the trade. The exit strategy is an important part of trading. But, it is easier said than done. A systematic approach and profit booking can be very productive if put in a trade.
Due to lack of awareness, many traders face disappointments while trading. This is why we’re going to discuss ‘why is it important to book profits in the share market?’
Importance of Profit Booking in the Share Market
You know “booking profit is important” but most people do not understand the selling part. In reality, it is not possible to get the right price all the time. Here comes the profit booking in the picture.
Everybody is familiar with the volatility of the stock markets which are more volatile than before. Long-term investors who invest in blue-chip stocks or large-cap stocks are assured of guaranteed returns without any fear of volatility. But holding onto an entire equity investment for long-term can turn out to be a loss-making proposition. We agreed that staying in equities for long-term can be a way to increase wealth over time but without booking profits could be really risky. In simple words, it cannot be achieved if the investor failed to book profits in a timely manner. The profit booking is necessary if the stocks in the portfolio are getting overvalued. So, in a long-term investment one can book profits at regular intervals against market volatility and hedge the risks.
Another reason why people failed to make money in the stock market is the emotions attached to the stocks/shares. Sometimes investors become so attached to their shares that they just don’t want to sell the shares. It is no different from the love of personal property, real estate, or car. Just because of this, when it is the moment to book profits and exit the trade, we hold on to the shares, which is wrong by the way! Just remember, you can always re-enter the counter at lower levels.
Final Thoughts: –
By reviewing the importance and reasons for profit booking in the share market, it is clear that one can secure profits on a trade by booking profits. But, it is very stock specific. In fact, most experts advised to booked profits on a small portion of the investment so that one can book profits on a certain part and let the rest kept to growth.
Nevertheless, it is up to you. There is no harm to booking profits.
Hope, you find this article helpful. If you have any query or would like to add something then doesn’t forget to mention in the comment section below.