There are so many instances where we sell the stocks at profit or loss but after that the stock rises like anything. I know we should not think about it but we can do something about it. This is where the profit trailing comes into picture. A lot of people says that we should buy low and sell high. So when the stocks goes up, we sell it because we want to get that profit locked.
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But the problem is sometimes those stocks becomes the multibagger and we miss the train. So what we have to do is to trail the profit. Trailing the profit means, if the stock is going up we will continue to hold until and unless it continues to go up. But at the same time we will keep the stop loss at 10% from the high. For example, if the stock is rising from Rs 50 to Rs 100 and then it fall to Rs 90, then we will sell it. But if it goes to Rs 95 and then go up to Rs 150, we are riding the profit.
Let me give you an example, I got IRFC share for Rs 26 in IPO. It came down to Rs 19 after 5 months. But after an year it went upto Rs 36, so I sold one third of the shares. Then again it went upto Rs 49 and I sold another one third. And that stock went upto Rs 200 which is like 8x of my buying price. If I would have not sold the shares, I would have got a good profit. This is where the profit trailing comes into picture.
So the thing is we should ride the profit and cut the loses as soon as possible. The stock which is going up have better chances of going up than the stocks going down.