“Reason why profit-taking becomes smaller” published as a column on Toyo Keizai ONLINE

Good morning, this is Matsushita.

Today is a day between Golden Week holidays,

the Nikkei stock average and the USD/JPY are both trading lightly.

One of the representative worries for individual investors is

“it’s hard to take profits; profits are small.”

)

Today, let’s **explain** the reason behind this.

The reason is,

“We simply don’t know price movements.”

In most cases, when taking profits becomes small,

you buy and the price rises,

as unrealized gains widen,

you think, “it will go higher.”

Then, while holding that expectation,

the price keeps falling,

and you think, “I don’t want unrealized profits to become zero,”

so you take profits, and afterward,

it starts rising again—this pattern repeats.

In other words, if you had exited earlier or later, you could have bigger profits,

but the place where you took profits turned out to be the lowest price.

When you lay it out in sequence,

this worry may look like a mental issue,

but in fact it is a theoretical, technical problem.

When unrealized gains begin to widen,

if you know that “sooner or later the price will start to fall,”

you would take profits during the ascent or soon after the decline begins.

Also, you would understand at what point price begins to rise again,

which technical indicators to look at,

whether there remains a possibility of another rise,

whether you can recognize that the rise has begun,

and you can recover unrealized gains with the rise.

However, if you do not understand that the price can begin to fall,

and you do not understand that prices may rise again,

you end up with small profits driven by the mental block of disliking declines in unrealized profits,

and exit with small profits.

In short, the reason profits become small is

a combination of lack of knowledge and mental factors.

To a certain extent, investment actions and outcomes can be explained theoretically.

That is why investment can scientifically

be made to generate profits.

If you have lost money in investments up to now,

start by understanding the theory and applying it to practice,

so that you can raise your profit level.

Please study such robust investment theory.

In the column two days from now,

I will explain the reasons profits can be lost more significantly.