Stock trading can be unpredictable for investors, it occurs when the price decreases by an agreed-upon percentage, prompting trading to stop temporarily to prevent market fluctuation.
While lower circuit breakers provide important securities against market instability, they may present problems for those trying to exit their positions.
The lower circuit stock strategy can be intimidating for new traders. In this guide, I will explain How to Exit from Lower Circuit Stock? and offer a complete plan for exiting them effectively.
Understanding Lower Circuit Stocks
Lower circuit stocks refer to stocks that have experienced a price decrease, prompting stock exchanges to implement temporary trading and prevent market crashes.
The lower circuit limit depends on the exchange and stock itself but typically ranges between 10%-20% of trading activity on a specific day.
Once a stock reaches its lower circuit limit, all trading activity for that stock is suspended until its circuit break, typically between minutes to an hour. Still, it could even last an entire trading session in extreme cases.
How to Exit from Lower Circuit Stock?
Here is a step-by-step guide on how to exit from a lower circuit stock:
Step 1: Understand the Lower Circuit Plan
To understand lower circuit stocks and their effects on trading activity, understand their limit, duration, and any possible adverse consequences for investors.
Step 2: Analyse Your Investment Position
Carefully assess your investment goals, risk tolerance, and long-term investment horizon. Decide whether the stock has long-term potential or it’s time to exit it from your portfolio.
Step 3: Stay aware of Market News and Stock Fundamentals
Keep informed of recent market events that could influence the stock’s performance, such as financial statements, industry trends, or overall market conditions.
Step 4: Review Strategic Order Placement:
By employing effective order placement techniques, your chances of successfully exiting a position will increase exponentially.
- Pre-Open Session Orders: Place sell orders before the regular trading session begins. These will be processed first when trading resumes and given priority processing.
- After Market Orders (AMO): These orders allow traders to place trades after regular trading sessions have closed but before the market opens, thus allowing you to exit positions before it opens for business.
Step 5: Consider Stop-Loss Orders
Employ stop-loss orders to exit any position when its price falls down a predefined level. It helps to limit potential losses and protect your portfolio.
Step 6: Consult with Professionals
Seek the advice and expertise of a financial advisor or experienced broker when seeking guidance to your cases and goals in today’s explosive markets. Their guidance can assist with making sound investment decisions.
Step 7: Display Patience and Discipline
Avoid taking snap decisions due to emotions or panic. Instead, adopt an approach of patience and discipline to navigate lower-circuit strategies effectively.
Step 8: Continue Your Learning
Keep informed on current stock market results, lower circuit tools, and effective investment strategies by continuing your education. You can make better-informed decisions to secure your portfolio and become more knowledgeable.
What is the effect of Lower Circuit Stocks on Investors?
Lower circuit stocks have both positive and negative effects on investors. The circuit stocks can protect investors from more losses by breaking a freefall in stock market prices, and they may also prevent investors from quick losses.
If the share market prices continue to go down after it has been lifted, they could cause further losses. Given the unique challenges of lower circuit stocks, investors must devise effective exiting strategies.
Conclusion:
Lower circuit stocks can be difficult to understand. But, with careful planning, proper strategy, and discipline, investors can successfully manage these situations and their portfolio losses.
Always remain informed, make informed decisions, and seek professional guidance as necessary.
What Is a Lower Circuit Stock?
A lower circuit stock refers to any stock whose price has suffered an unexpected and drastic decrease, forcing a temporary stoppage in trading on stock exchanges to limit excessive volatility and prevent market crashes.
This mechanism helps maintain stability by providing stockholders with protection from such price swings as well as prevent market crashes from happening in the first place.
What Is The Lower Circuit Limit (LCL)?
The Lower Circuit Limit is the percentage by which a stock’s price must fall before trading is halted; this varies based on exchange and stock, but typically ranges between 10%-22%.
How long do lower circuits last?
Lower circuits usually last several minutes to an hour, although they could last an entire trading session in extreme cases.
How can I avoid falling into lower circuits?
To help prevent falling into lower circuits, the best way is to conduct in-depth research before investing and diversify across various asset classes and industries to reduce your overall exposure to risk.