Did you enter markets on Feb 16? 10 rules to remember if you invested at highs

"Trading will be successful only if traders can operate with strict stop loss. Corrections in bull markets can be 10 percent or more. Averaging in a falling market will be like catching a falling knife," he said.

The big question now is – what should investors/traders do? Should one hold onto positions or exit? Experts feel that the market texture has changed in the short term to sell on rallies from buy on dips, but the long-term story is still intact.

“Reluctance to exit positions in case of loss and squaring off positions in profits is one of the common tendencies which can be observed in most of the investors. Although it is important to exit positions by taking a considerable amount of profits, it is equally important to trade according to the risk–reward ratio,” Likhita Chepa, Senior Research Analyst at CapitalVia Global Research Limited told Moneycontrol.

“Investors who have entered the market at all-time high must keep in mind that the valuations are already high and short-term corrections are inherent in such scenario. Therefore, one should not square off positions out of panic,” says Chepa.

She further added that one must find the support and resistance levels for the stocks and follow strict stop – loss and target. Also, it is advisable to avoid averaging in case investors’ only objective is to minimize loss by doing it.

The P&L statement might be in red for the stocks in which you entered on highs, but if the selection was backed by research and you are convinced about the future outlook of the stock – one can remain invested.

However, there is one thing that traders should do at once and that is to cut leverages in the portfolio, and trade with strict stop losses.

“Stock markets are never unidirectional, and corrective waves are a part of the trend.  During such phases, understand the intensity of the corrective price action, and then evaluate positions with respect to their relative strength against the overall market performance,” Sacchitanand Uttekar, DVP – Technical (Equity), Tradebulls Securities told Moneycontrol.

“Gauging the strength of the stocks based on its quality & recent price performance with respect to their prior existing up move could cut down some stress. Maintaining a price point of reevaluation or Stop loss remains mandatory in any type of market scenario,” he said.

Here are top ruled by experts which one should remember when markets start heading south:

Expert: Likhita Chepa, Senior Research Analyst at CapitalVia Global Research Limited

1) Avoid panic selling

2) Do not try to time the market

3) Do not consider every correction as a buying opportunity

4) Do not ignore the stop loss or fear from exiting a position at a loss

5) Instead trade with quantity according to your risk appetite

6) While buying on dips, try to keep your portfolio diversified

7) Try to identify the support and resistance levels for the stocks and buy them only upon confirmation of reversal trend.

Expert: Sacchitanand Uttekar, DVP – Technical (Equity), Tradebulls Securities

8) Reshuffling Of Portfolio:

The reshuffling of the portfolio should be prioritized during such a period where more weightage should be given to defensives & quality outperformers while laggards & momentum-based shocks could be lightened from one's trading as well as investing portfolio.

Always remember that no matter what, prices of quality companies always bounces back while prices of those speculative companies may not return to their glory.

So any investors holding ‘Quality despite of short term pain would be rewarded’ hence never hesitate or panic and wait patiently.

9) Reduce Leverage:

Reduce leverage so that once the bullish reversal sets in the opportunity to add aggressively at a better price would not be missed.

Expert: Mayuresh Joshi is the Head of Research – Equity at William O’Neil India.

10) Sell if the stock fall 7-8%

To make money in stocks, you must protect the money you have. Live to invest another day by following this simple rule: Always sell a stock it if falls 7-8% below what you paid for it.

This basic principle helps you cap your potential downside. And, it is the simplest way to make sure you never let a small loss become a BIG one.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.