An investor is the most inspired person as he continues to reap benefits in the market day after day, due to the prevailing upward swings in the market. So far so good! It is reasonable to expect a prudent investor to reap the benefits of such a situation. But the danger lies when such profit-taking leads one to the path of temptation. At that level, one error committed by the investor is sufficient to wipe out the entire profits earned over a long period. So, the profit possibilities in a market undergoing this phase needs to be carefully studied and the temptation part of it must be scrupulously avoided.
The swing may affect the market as a whole or a group of shares of a particular segment of the industry. For example the real estate shares may be in for the upward mobility; the same development could happen with the shares of the computer hardware/software companies. When this happens, it is natural for the investors/brokers to jump on the purchase of shares of such companies. This is the time when an investor has to apply his researched knowledge to practical application. Study the issues related to the companies. It is a well-researched fact that the portfolios containing smallest firms realizes an average rate or return more than (roughly 20%) the portfolio containing the largest firms. Even among the small companies, an investor has to determine which ones to buy and when to buy them to take full advantage the conditions and come out with the winning edge.
While dealing with this situation in stocks, an element of risk is involved. An investor, therefore, can not afford to ignore the basic rules governing the trade. These fundamentals demand attention in any situation prevailing in the market. A strong level of liquidity is the important requirement; scope for expansion and the company's ability to avail the genuine market opportunity promptly and quickly; is the swing in the share price due to take-over possibilities? Honest answers will have to be found before planning to invest at this time.
An investor/broker knows from past experience that the swing is not the permanent feature of the market. It is the temporary phase. How long it will last and how long the intensity would be, is a matter of conjecture. Timing of your investment assumes great importance here. At what time you have decided to own a particular share? Whether the swing has commenced? Or when its price has peaked? In the later case, your entry may land you in losses. All depends upon your judgment and you need to take a detached view, free from the pull of temptations.
Investors are not special human beings. They are, however, deeply attached to the happenings in the exchange. All love and appreciate the winner and the loser is the loner. But to be a winner, to make profits taking advantage of the swings in the real sense, when the crowd in the market talks about making a killing, that is the right time to quit. When the stocks have dropped to a low level to the point of discouraging the market, a good investor sees the hidden swings in the shares and avails the buying opportunity.
As it is, trading is risky when there is an upward swing in the market, and an investor would not like to lose from the existing level of profit. Your strategy assumes importance here and you need to avoid the possibility of costly mistakes by falling in to the trap of temptation. Keep abreast of the developments in the market. Think what may happen tomorrow or a fortnight/month later! Do not be under the impression that such swings in the market are the sure path to easy money.
Caution and patience are the watchwords at this crucial time. Go ahead, but take stock of the situation everyday?may be sometimes every minute! Understand your position properly before you jump on investments.