Be clear when you are buying a particular stock whether you would like to buy it for short term or long term. If it is for short term, sell the moment you achieve your target selling price (for example a 10% profit on the trade).
There is no need to place stop losses for long term buys. Stop loss is only meant for limiting loss for short term trades. Have the discipline to sell at the stop loss level. Do not be emotionally attached to a stock bought for short term.
It is advisable to perform long term investing in one demat account and short term trading in another demat account. Alternatively, you can invest for long term in your spouse’s name and short term trading in your name. This ensures that the income tax authorities do not classify you as a trader and levy higher rate of taxes.
The reason why many investors are not successful is because they do not have an investment plan. Investors must decide beforehand whether they will be investing for long term, or both long and short term.
If you have decided to invest for long term and have picked fundamentally strong stocks, then you must not worry about short term fluctuations in the market.Make it a policy to buy and hold only bluechip stocks. Do not try to speculate with other riskier stocks.
It is not wise to only trade for short term. If you would like to do short term trading, then you must also make long term investments.
If you decide to allocate 20% of your total assets in the stock markets, then you can allocate 15%-20% in long term or decide to invest 15% for long term and another 5% for short term trades. Please remember that short term trades are comparatively more risky and you must be ready to incur limited losses.
Intra-day trading is not recommended. General experience of people is that they profit in some trades and lose in the other trades and the net effect is that they seem to lose more than they gain. The stress undertaken for intra-day trading is far more than the benefits received from it.
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