Seven percent rule
Table of Contents
The seven percent Rule” is a method created to reduce risk in the stock market, and both traders and investors follow this guideline. If a stock you own falls 7% below its purchase price, you should sell it and protect the remaining capital. However, it depends on each investor’s strategy, as some follow the 7% rule while others follow a 10% rule.
Why seven percent rule is important
In the stock market, anything can happen at any time, so predictions cannot be made with certainty. If a stock falls by seven percent and you continue to hold it, there is a risk that you may not be able to protect your capital, and your investment could get stuck. The seven percent rule helps to protect you from losses.
Important points:
- It helps prevent emotional decisions because often due to emotional impulses, people do not sell stocks, and the stock keeps falling, causing the losses to increase. If you follow the seven percent rule, it helps build discipline in you.
- It protects you from significant losses as you don’t lose more than seven percent of your capital.
- It keeps your long-term portfolio safe because not all stocks in your portfolio fall at the same time. However, if you don’t sell a stock when it falls seven percent, it can negatively impact your portfolio, and you may miss the opportunity to invest that money in better-performing stocks.
How work seven percent rule
I will give you some examples how work seven percent rule
If you bought a stock at 100 Rs and it falls by 7 Rs, it means you have incurred a seven percent loss. However, if you sell the stock at that point, your loss will be limited to 7 Rs per share.
Sure! Here’s the translation in English:
“If a stock increases by 7 percent after a decline and then recovers, you can invest again at the new level. However, if the stock continues to fall, you can limit your loss to 7 percent and avoid major losses. That’s why most investors and traders follow the 7 percent rule.”
“Is the seven percent rule suitable for long-term investors?”
“Not every investor may find the seven percent rule suitable. It’s possible that you have invested in a company that you want to hold for the long term because it offers good dividends. You might be waiting for the stock to drop so you can buy more, increasing your stock quantity and earning more dividend when the company pays it next time. Therefore, the 7 percent rule may not be suitable for everyone.”
“For which investors is the seven percent rule suitable?”
- short term trader
- intraday trader
- swing trader
- “Those who want to limit their losses in the stock market.”
Such investors do not need to follow the seven percent rule.
- long term investors who are investing in fundamentally strong companies
- Those investors who invest for dividends prioritize the income from dividends over the stock price.
- Some people invest in blue chip companies because the company may fall for some time but then recovers rapidly later.
What should a long-term investor do?
If you are a long-term investor, you can follow the 20 or 25 percent rule instead of the seven percent rule according to your own preference, but it is very rare that a good company falls by 20 or 25 percent in one or two days.
How and when to follow the seven percent rule.
- If you are a short or swing trader, the seven percent rule can be a very good risk management tool.
conclusion
The seven percent rule is for limiting the stock market. But it is not right for everyone.
- If you are trading on the app, you can have a better strategy.
- If you are a long-term investor, you don’t need to follow it very strictly.
- You can follow this rule in the same way as your investment style.
What is a 90% percent rule in stock market
Just as there is a rule for seven percent, there is also a rule for ninety percent. According to this rule, new residents lose ninety percent of their money within the first ninety days.
There are some main reasons behind this rule.
- When a NIA resident or TRDER comes to the market, then he does not have a market society and he is not able to take the right decision and takes 90% wrong decision and so when we open any platform for INEVSTING, then there is a discussion show in the front.
- Out of 10, 9 individuals trade equity future options.
- On average loss maker registered net trading losses close to 50000 rupees
- over and above the net trading losses incurred loss maker expended an additional 28%of net trading loss and transections costs
- those making net trading profits incurred between 15% to 50% of such profit as transactions costs
- Not being able to set a stop loss at the right time or in the right way can help in avoiding significant losses.
- Emotional decisions, driven by fear and greed, lead new investors to make wrong choices 90% of the time in the stock market, resulting in capital depletion.
Suggestions to avoid these risks.
- Just as you gather basic information before taking an exam and then take the exam, if the exam is out of 100 marks, you can surely score passing marks. But when it comes to the stock market, everyone wants to earn money quickly, yet very few people take the time to learn about it which could save their capital and help them succeed in stocks.
- Using the right stop loss at the right time
- One should not make decisions based solely on emotions.
If a new investor follows these points, he can reduce his losses significantly and can include his name among the few people who succeed in the stock market.
What is the 50/30/20 rule?
50/30/20 is a very simple method of saving in your personal life. It generally divides your income into three parts so that you can live your life comfortably and also save a good amount for your future, ensuring that you do not face any troubles in your old age.
What is the meaning of 50%
- Spending 50% of your income means that you should spend 50% on things that are very essential for your life, such as any EMIs, electricity bills, household expenses, or children’s school fees; essentially, expenses that cannot be cut down. You can also call these fixed costs, and you should spend 50% on them.
- You should spend 30% on your needs, or if you have any desires like wanting to eat out sometimes, wanting to watch a movie, wanting to shop a little, or if you like going to the gym, then you can spend about 30% on such needs.
What is the meaning of 20%
You should save 20% of your income for your future plans because neither you nor anyone else knows what might happen in the future, so you should always save that 20%.for example
- to create an emergency fund
- You should deposit some money in your retirement account.
- You need to invest some money in SIP or the National Pension Scheme.
If you follow all these points well, you will never face major problems in life, and your life will continue smoothly, while you can also save a good amount of money for your future. Here, a common roadmap of 53/30/20 is provided; if possible, you can increase the 20% parts according to your calculations, as it will give you more safety and stability in comparison to others in the future.