Jagruti's Research on BSE/NSE: Good Night

Image by Brooklyn Museum via Flickr

Hi Friends,

Today was a bad day for the market, it slipped by over 300 points as expected !! Tomorrow will be worse. Market finds it very hard to sustain convincingly above 17500 mark. With the market falling it suddenly came to my mind to tell you.....

Many a times, it is observed that when we are stuck with some stock which is consistingly falling, we think of averaging at lower levels by investing more in the same stock when market falls. The logic applied here is our average cost is reduced and stock will reach the lower cost soon when market rises and we will have solace that we did not make loss on that trade or lesser amount of loss per share,whereas actually we are incurring more loss if we count total loss in the transaction as the number of shares and the total amount invested increases. Many traders must have averaged BHARTI,IDEA,RELIANCE COMMUNICATIONS at different levels and it is still falling is the best example. But, in contrast to such belief, I have to advise those believers that in that case you may convince yourself of not making losses but in fact you are losing opportunity to make profit !! How ?? Look, in averaging the cost you are investing the spare fund again in the bad choice. Instead, if you bought another rising stock with that fund you would have generated more profit than the loss of earlier trade! Why is it so that we must generate money out of that one stock only ? That is why I always say that 'do not marry a stock', switch over to other good stock and count your total revenue of all trades at the end of the period and not revenue per trade .

If we have made wrong choice why should our ego not allow us to close the trade ? The winner in this market is one who also knows to book the loss, stop the loss !!

With this piece of my mind I wish you good night see you at the opening bell,

Regards,
Jagruti.