Profit booking is also known as profit taking. Profit booking is when individuals or companies liquidate their holdings to cash out the profits that they have generated. You must know that for a situation to be called profit booking there has to be a profit involved. When the stocks are liquidated and cashed out to avoid losses, then such a situation cannot be known as profit booking.
Here are some of the common situations that lead to investors cashing out their investments. At times when company specific positive news hits the market then profit can be booked. You can assume that X Company has won a massive contract or has developed some new technology then in that case, a lot of people will start buying the stock. And thus, this excessive buying will lead to a price rise. As a consequence, the investment targets of a lot of people are met, which lead them to sell out their stock causing a temporary slump in the market induced by profit booking.
As there can be positive news for a single company, there can also be positive news for an entire sector. So first there will be a rise in price followed by a peak, which will be then followed by a selloff leading to a temporary slump.
Experts suggest that you must never book profits simply because you think markets are at a peak. Also, keep in mind that you must not panic when everyone else is selling. It is recommended to evaluate your particular stock or mutual fund independent of the market. Also remember, not to sell your stock too soon instead try to discipline your holding period so that you can ride through an entire growth cycle. In order to book profit and get accurate stock market tips, you must contact Money Classic Research.