“Bulls make money, Bears make money, Pigs get slaughtered.”
The quote above gives an idea about some sides of the market. Lets split the quote and discuss it.
1) Bulls make money Investors with optimism with the stock market and eventually with the stock. When trader or the investors is positive on the stocks, it is known as bull side.
2) Bears make money Investors with pessimism with the stock. When trader or the investor thinks that stock can correct and give fresh buying opportunity on with some down side protection, bears comes alive. As much as the stock goes down, investors counts profits.
3) Pigs get slaughtered Traders or the investors who don't trade with own study or logic and just try to follow crowd often makes losses.
How do investors make money in the Share market? Why many investors lose money in the market. Who often makes money? Which stock to be traded? And there are many more questions. Now let us try to find out answers of few frequently asked questions.
When the market is correcting from high levels and stocks starts delivering the losses, investors usually tends to sell the stocks and try to stay away from the market. But this is wrong approach. It is said, “Don't catch the falling knife.” It is difficult to catch the bottom of the stock but in parts buying the stock can give better opportunity to lower the break even point on every dip. In equity cash market, traders can take benefits of short sell method and book profits on intra-day basis. In future market, investors can hold their positions one month or two months as well. But for the long term investors, significant correction in the market is always a better buying opportunity. Now in bear market, investors with long term vision enters in the stock and hold it till the rally comes. But traders often enters on wrong spot and if the stock correct more, often they book losses. Instead of this, buying on dips should be followed.
When the market gets some up trend, investors usually open up their eyes and gets attracted towards the market. Investors starts buying the stocks. This could be good with long term vision as well. But on rally, long term investors likes to sell the stocks in parts. Every rally should be utilised to book profit in parts. Investors usually gets attracted in the middle of the rally and try to hold the stock and as the rally starts consolidation and correction, they keep holding the stock and as early as the stocks giving some correction, they exit in loss. This is the approach which is used by maximum investors. But this is wrong approach. Thus, bull market is the market where investors should count the profits.
When some news is anticipated to come in the market which can give up trend to the market, to any specific sector or any particular stock, as the volume pick up starts with the roumers, traders can pick the stock and try to utilise the rally. For example: Monsoon rally. In the expectation of better monsoon, monsoon related stocks have delivered more than 50-60 percent returns in just three four months. Monsoon came better as well but not what had been anticipated earlier. But still the stocks delivered returns. This could be another approach. There is a saying, “ Buy on rumors and sell on the news.”
These are some methods where one can find significant protection to the capital and could minimise the risk while investing.