6 Ws of the Market

 

Most investors are confused on when/how to take action in the stock markets that is when to buy/sell. Let me comprehend the same for you. (These actions are specific to Microcaps/Small Cap/Midcap Space)

What to Buy: To determine what to buy, you can go through my extensive Equity Checklist which will help you in determining the right stocks under the Microcaps/Small Cap/Midcap Space.

When to Buy: If you are convinced with What to Buy, then you need to decide at which price you would like to enter the stock. I do take help of technical analysis to help me make that decision (Techno-Funda Analysis). But it isn’t always necessary to use it. Consider these questions before making a Buy Trade:

1.       Are you willing to buy more if it goes down by 10%?

2.       Are you willing to buy more if it goes up by 10%?

If it’s a yes in both the questions, then you are definitely ready to start investing the in the stock. (You are convinced with the stock and its ability to grow in the long term).

When to Increase Position: One you are done making the Buy Trade, answer these below questions:

1.       Are you willing to sell if it goes down by 10%?

2.       Are you willing to sell if it goes up by 10%?

If it’s a yes in both questions, this means that you are still not convinced enough to start long term investment in the stock. The position is still a trading position for you. If it’s a trading position for you, then you should definitely keep a stop loss. (Sizing of these positions should be such that you should be able to sleep well at night).

When to Reduce Position: You should reduce your Position in the stock under 2 circumstances.

1.       Profit Booking: If your investment in the stock is profitable, position reducing would be recommended if you feel that the market has given a very good up move in the stock but shouldn’t completely sell off the stock as your conviction in the stock is still high.

2.       Loss Booking: If your investment in the stock is loss-making, you can either hold the position or start booking losses by reducing your position and then add the stock back at an appropriate price (using Technical Analysis) to recover the loss that you have made.

When to Sell a Stock:  To determine When to Sell, you can go through my Blog Post on “When to Sell a Stock” for an extensive list on different scenarios of the stock markets and how to act.

When to do Nothing: To not act is the most difficult thing to do in the stock markets. Usually, you shouldn’t act when the overall markets seem in a sideways mode. There is a temporary fundamental issue that has come in light and will be fixed eventually, then in this case you shouldn’t act upon it if your conviction in the stock is high.

Hope this helps fellow investors in making Buy/Sell Decisions!

Happy Investing!!!!!