When the bulls rule the market, and the trend remains upward for a long time, the investor has questions: when will the reversal occur and what to do with profitable positions. Here 6 wrong actions.
Count, that all the "fun" is over
Trend is direction, by which quotes move during a certain period of time. The longer it lasts, the more doubts about its preservation.
While the asset is trending, especially long lasting, corrections occur, because of which it may seem, that the trend has changed.
IN 2021 G. we have seen this situation many times in S&P 500, but every time the correction was bought out, and the index was updating historical peaks.
A trend reversal can be identified using chart analysis, i.e, there must be confirmation. If there is no reason to believe, that the trend is really broken, then you should not leave the position completely or go short.
Instead, you can:
• Be calm and not give in to emotions.
• Explore the issue more deeply: find the reasons for the movement and try to determine, correction or trend change.
• Be prepared in advance for, that the price could go the other way. To do this, use the diversification rules.
Read also: Missed a chance to earn. What is FOMO: theory and practice
Hurry to fix the position
This item is similar to the first, but different in approach.
Let's admit, the investor entered the position along the trend, and she came out on top. Psychology works - you want to take profit, when the asset became expensive or even overbought. Next, the investor wants to wait for a correction to open a new position, all in the same trend - but it may turn out, that there is still no correction, and growth continues. It turns out, that in pursuit of averaging the entry price or taking a small profit, we miss an even larger movement.
PIK or Tinkoff securities can serve as a good example now.. We see a clear, pronounced trend in them., without particularly deep corrections. Waiting for a slightly better moment to buy in an uptrend is irrational.. The best solution is to follow the trend., without short exits and expectations of correction - that is,, buy and expect further growth.
Read also: When to Take Profits?
Change A to B
Let's admit, you bought shares from one sector, in an uptrend. There is a similar company, but the dynamics of its shares are lagging behind - and this suggests the idea of buying.
Firstly, if some stocks look worse than the sector, there are often reasons for this. Secondly, if the investment idea in sagging assets does not match your strategy, then it is better to focus on existing positions.
Simply put, if we have an outsider, then in most cases he will not become a favorite. By purchasing the best stocks from the sector, it is worth keeping them until the end of the trend.
Do not fix profits upon reaching the target
There are short-term traders in the market, but there are investors - they have different strategies to achieve goals. When exactly your expectations were fulfilled, and your position target has been achieved, it makes sense to close it.
The asset can grow further - and then you will have a spontaneous desire to return to it. But the goal was set and fulfilled - so is it worth changing the decision? The answer to this question will depend on the strategy and investment period.. Need to remember: all, what goes beyond goals are emotions, and psychological pressure can lead an investor to failure.
Read also: What are Targets and How They Move the US Market
Don't avoid unfamiliar assets
Some novice investors make investment decisions without analyzing the situation.. In other words, people buy that, what is growing. This often leads to an overbought asset and increased risks.. If something goes wrong, then it may seem to these investors, that the market is going against them.
Trading without analysis should be avoided. Successful investment requires a solid understanding of the market, Sector, industries or stocks.
Speculate and trade with leverage
We already know, that there may be corrections in the trend - and the temptation to make money on them grows too. If your strategy lacks a clear plan: how to get through the correction, how to apply diversification and leverage, - using short positions, especially with borrowed funds, better to avoid.
Main conclusions
• During an uptrend, as in other periods, the investor needs: strategy, market understanding and psychological resilience.
• If the uptrend persists for a long time, then you shouldn't go against him. It makes sense to stay in it until the reversal is certain..
• A change in trend is easily confused with a correction. Think ahead, how to act in case of a change in price direction.
• If there is no plan, then you should not speculate on a decline and resort to shoulder.
• Do not use assets without understanding the industry and the position of the company.
• Never forget about the diversification rules.
• Look for a replacement or new assets in the portfolio very carefully. Severely sagging papers may not always meet expectations.
Read also: 5 of things, which shouldn't be done on falling markets
