Strategies of a smart trader

There is a key connection between psychology of a trader and stock markets. Most of the time it happens that the stocks we hold do not perform while other stocks we do not possess are in a rally.

This applies more specifically to sectoral stocks. Stock markets are never stagnant. They are subjected to change at every moment. Smart trader has a different approach to his work. He will not invest in a same stock or a sector. His investment is regulated by a proper analysis of the performance of the stock market.

He will base his decision primarily on the performance of stock markets and sectoral performance in particular. At times we see a rally in IT stocks and sometimes a rally in the automobile sector or banking sector. A smart trader changes his investment to stocks where the sectors are performing well. Sectoral indices play a key role in deciding the stock to be picked.

Market is never monotonous, and it is diversified, so should be the approach of the investor. He should have the vision of diversification in his portfolio. There needs to be a time to time change in decisions related to investment. Just as the market changes its functioning pattern, accordingly the investor needs to sketch his plan or strategy. Smart investor will invest with smart tactics.

Same strategy does not work at all times. Even after careful analysis of sectoral stock investment sometimes the investor goes through a phase of loss. Markets are subjected to unusual changes.

Sector which is outperforming today will not be the same over a period. Similarly, sector which is under performing may outperform tomorrow or in the near future. The ups and downs of sectoral indices stocks and risk reward ratio should be taken into consideration. Smart investor will always persistently change his investment strategy in different sectors.

Sectors indicating increase in price movement are selected by a smart investor. Whenever there is a sharp movement in prices of particular sector that should be the area of work for an investor.

Such sectors become a part of the market rally. If stock changes its trend then the investor strategy also needs to be changed. Sudden sharp rise in price of a stock or a sudden change in the trend needs to be observed carefully as it might go into negative trend also.

If there is correction in the stock after changing trend, then it is better to exit from the stock as it is bound to fall. Smart investor will never ever make the mistake of buying a stock whose price has fallen or if it is available at cheaper rate.

Low rate of the stock does not ensure returns, instead it clearly indicates a further downtrend. One needs to keenly observe the changes in the trend of the stock. Smart investor will always book profits and exit at the right time. He will never turn his profit into a loss.

Thus, a smart investor has a clear vision of selection of stock, right entry and exit points, booking profits at the right time and above all he will always maintain disciplined approach by setting up a stop loss.

(The author is a homemaker who dabbles in stock market investments in free time)