Investors spend a disproportionate amount of time buying a stock, as compared to selling it. A good game plan for investing is akin to the war strategy used in the ‘Mahabharat,’ known as ‘Chakravyuh.’ The young Abhimanyu knew how to penetrate into the labyrinth formation but still died in the ‘Chakravyuh'. This was because he did not have the knowledge of its exit strategy. Therefore identifying market trends is essential when it comes to both buying and selling decisions.
It is often said, “Only when the tide goes out, do you discover who's been swimming naked.”
As the global markets come under pressure, a strict sell-rule is what can protect you from emotional and financial stress. Often, when the market is in a correction, three out of four stocks follow the market direction. Investors often believe they are right in their research and approach and cling on to a stock. They follow this even if the market swings the other way. Selling is the key factor that determines a successful investor from others. If a sell-rule is in place, it provides a clear framework for avoiding biases and emotions.. With the Indian market in a correction, do not hesitate to sell away stocks that breach your sell rules. You simply cannot afford to have a love affair with a stock as it could become an extremely expensive affair.
Post a correction in the markets, a Rally Attempt begins after the markets cool off, and the index trades above the recent bottom for at least three consecutive sessions. A Follow-Through Day is a solid up session, generally a 1.5% or higher gain, with volume being higher than the previous day. A follow-through session officially opens the buying season for leading stocks. Leaders often second the Rally's confirmation by breaking out of bases near the Follow-Through Day. A Distribution Day is a weak day in the market, when the index closes on higher volume by 0.2% or more. Therefore, distribution days are used to gauge market strength.
Identifying Market Trends