You should convert your trading into short term investment if your analysis indicates probable profit. Moreover, you can think about short term investment if your selected company is fundamentally strong.
On the contrary, you should follow stop loss rule when your stock is fundamentally weak.
Stock trading is trade trend reversal trading. If you can catch a successful trend, you can make money. Otherwise, you have to count loss.
Suppose, you have bought some shares for day trading. Later, share price is going down. You have decided to convert your day trading into swing trading.
This falling price is continuing to some more days. Now, you see that your loss percentage is 15%.
What should you do right now?
You have to choose one of the two options- one is selling at loss another one is holding for future. Before taking final decision, you should reconsider the fundamental indicators.
First of all, You must analysis top 3 fundamental indicators-EPS, P/E Ratio and Dividend Yield. Secondly, you should analysis first one year candlestick chart.
Thirdly, find out the impact of top 5 price sensitive date-AGM date, spot date, dividend, record and quarterly performance date. Finally, think about dividend declaration effect and record date effect on your stock.
Now time to take final decision. If your fundamental analysis and technical analysis indicate that your holding will increase in future, you should convert your trading into short term investment.
Temporarily, your holding may price sensitive impact. It will recover if you hold for some more time. So, you need not sell at loss.
How does short term investment recover your loss?
Share market has a common pattern for all over the year. If you know how to apply candlestick chart to analyze price movement, you can observe the pattern.
Price may increase for good news. Similarly, price may decrease for bad news. If you wait for a certain time, you can at least recover your loss.
Let’s share a real example
I bought a textile company’s shares. Later, company declared quarterly negative EPS. As a result, my holding reduced more than 10%.
I didn’t sell my holding because this company was fundamentally strong. After some days later, price started to increase.
I recovered my loss. If I sold at 15% loss, I had lost 15% capital. Remember that if you can recover loss from a losing trade, it is similar to gain.
Caution: don’t wait to recover loss if your stock is not fundamentally strong. For a fundamentally weak company, you should follow stop loss in case you make trading mistakes.
What are the benefits of converting trading into short term investment?
The most important benefit is recovering loss. Your loss will not count as loss unless you sell your holding. Moreover, if you sell at loss, you will lose motivation.
On the contrary, you will receive dividend from you short term investment. You can sell before AGM at high price.
If your trading goes against you, you should think some factors before converting your trading into short term investment. First analyze the fundamental and technical indicators.
Hold your stock if indicators suggest profit. Don’t wait to recover loss for a fundamentally weak stock. Investing will bring dividend and capital gain. But, you have to apply long term investing buying strategies.