Importance of small profits in your trading

The one thing that no investor can deny about the markets is that they are unpredictable. This is especially true for a trader whose general view towards the market is short-term, which in most instances is limited to day trading. Many traders even square off positions within minutes. In such a scenario, it is indispensable to book small profits while you are stock trading.

How can you earn money through stock trading?

Most of the traders do not like to keep their positions open for an extended period. A trader’s mentality is different from an investor’s, who may even choose to hold positions for weeks, months, or years.

You must remember the following points for intraday trading:

  • Traders look at technical analysis reports, chart readings, and market sentiments to enter markets.
  • Traders earn their living by looking for small price movements in their favour.
  • Traders close their positions fast, usually on the same day.

Why are small profits crucial?

Markets are notorious for high volatility in shorter periods. Even a stock investment that may be in a bullish trend over a long period sees frequent fluctuations of ups and downs during shorter time frames that make up the trending bull run. Often, traders may have identified the trend correctly, yet due to these fluctuations, they may end up in the red and make a loss even on a correctly predicted winning trend. So, traders need to keep booking small profits when an opportunity for the same comes up.

What are the prerequisites of day trading?

Many traders close their positions within minutes of executing the trade. The importance of booking small profits is essential for a trader, and high discipline to a pre-defined strategy in such cases is the order of the day.

Those trading regularly should follow these three principles as the ideal trading philosophy:

  • Keep booking small profits
  • Keep exiting positions if the strategy is showing reversal
  • Use stop-loss orders to limit losses

Patience and discipline are of utmost importance while trading.

What are the pitfalls one can fall into while trading?

Traders generally make mistakes in the following ways:

  • When the trend goes against the trader, the person waits for a trend reversal instead of exiting and booking losses. Many still do not adhere to the often-prescribed safety of using stop losses.
  • Many traders get worked up when after exiting a position with a small profit, the trend further escalates into a higher profit zone.
  • Traders rue the missed opportunity and disturb their trading psych. A trader should not regret a lost chance.

Traders should realise that booking small profits is of prime importance. Intraday trading in stocks is not easy; one must show tremendous willingness and conviction. You should definitely consider taking the aid of a financial and investing expert if you believe that they would do a better job with your money.