Profit and loss in a stock is determined by various factors. One of them is the entry and exit points. In other words, at what point you buy the stock and when do you sell it decides your profit or loss.
Importance of entry, exit points in markets
An amateur investor or an experienced trader is always faced with the dilemma of when to buy and when to sell a stock. This decision is as important as the selection of a stock. Selection of a right stock itself doesn’t ensure profits. Let us understand this with the help of an example.
In the given example (Table 1), the investor squared off his position on December 14, 2018 with a mere profit of Rs 900. If he stayed invested till January 19, 2019, he would have made a profit of Rs 4,800.
When the stock moves up ,people tend to book profits and exit even with a small amount. So here psychology also plays a pivotal role. A person seeking small profits will earn only in small amounts. To reap more, he needs to stay invested. Right entry and exit points are very imperative. Let us see another example
In the given example (Table 2), the investor failed to maintain a stop loss. Ever since he bought the stock, the stock kept falling and today’s share price of IOC is around Rs 136, leaving the investor with a loss of Rs 28,500. If you don’t have a self-disciplined approach to maintain stop loss you are bound to be in losses.
Trading in stock market calls for a double trade rule which means as soon as you buy a stock you would strictly set up a stop loss. In the above example, the capital has been blocked with loss and it brings down the morale of the investor to trade further.
A simple stop loss would have saved him from a stressful financial loss. Here the investor’s decision to buy stock at that high price also was wrong. A careful technical analysis would have helped him. But even in such a situation if this stock is kept with the intention of long trading investment, it would fetch him returns.
Thus, it’s clear that entry and exit points form the heart of stock market trading. (The author is a homemaker who dabbles in stock market investments in free time)