[Summary]
The advantage of knowing the law of liquidity is that it does not guarantee profits, but it makes it easier to organize the materials you need to look at.
The advantage of knowing the law of liquidity is that it does not guarantee profits, but it makes it easier to organize the materials you need to look at.
In actual investment, the first step is to check the trading volume and the thickness of the board. However, we cannot overlook the fact that thin stocks may not sell as expected.
In this article, we will explain the benefits of knowing the laws of liquidity not as "knowledge" but as steps to check before buying or selling. Don't rush to conclusions, read according to your financial amount and time horizon.
First, divide by the merits of knowing the law of liquidity.
When looking at the benefits of knowing the law of liquidity, first determine what you want to judge. The information you need will change depending on whether you want to know the meaning, confirm before buying or selling, or review your current holdings.
Especially for beginners in investing, the easier the words are, the more they tend to take them as a conclusion. The benefit of knowing the laws of liquidity is not enough to make a decision. If you want to check it, it is more realistic to look at it in conjunction with fund management, holding period, and opposing materials.
Do not overestimate the benefits of knowing the laws of liquidity.
If you want to see the benefits of knowing the law of liquidity, first of all, make narrow assumptions. It is important not to mix up whether you are talking about the market as a whole, individual stocks, NISA or long-term funds.
Checking the following points will make things a lot easier.
| Axis to check | Benefits of knowing the law of liquidity |
|---|---|
| purpose | What do you use to judge? |
| Time axis | Which is closer to short-term trading, long-term holding, or NISA? |
| basis | Which one is more important: price, business performance, interest rates, exchange rates, or psychology? |
| risk | When things go the other way, where should you look again? |
| action | Will it lead to buying, selling, or doing nothing? |
Points that can easily cause trouble in making decisions
The advantage of knowing the law of liquidity is not only when you lack knowledge. In fact, there are situations where we interpret something conveniently because we know a little bit about it.
- Decide first what you can see with the benefit of knowing the law of liquidity.
- Differentiate between conditions that bring about benefits and conditions that do not.
- When expectations are too high, test with a small amount
- Write down the terms of withdrawal before considering profits.
The important thing here is not to settle on a single correct answer based solely on the merits of knowing the law of liquidity. In investment, the meaning of the same material changes depending on the market, holding period, and amount of funds. When in doubt, prioritize confirmation over conclusion.
Checklist before buying and selling
Before using the benefits of knowing the law of liquidity as a basis for making an actual decision, check at least these five things.
- Can you explain in one sentence the purpose of seeing the benefits of knowing the law of liquidity?
- Have you confirmed one or more countermeasures or failure conditions?
- Are you investing your living funds or money that will be used soon?
- Have you decided in advance the criteria for cutting losses, taking profits, and continuing to hold stocks?
- Are you making judgments based only on social media or short headlines?
Checklists are simple, but they prevent you from adding reasons after making a decision. The purpose of reviewing the benefits of knowing the law of liquidity is not to act faster, but to reduce unnecessary errors in judgment.
Summary
The benefit of knowing the law of liquidity is that it helps you organize your investment decisions. Even if you read it as an advantage, treating it as a stand-alone buy/sell signal will make your judgment difficult.
The points to keep in mind are as follows.
- See the benefits of knowing the law of liquidity Decide your purpose first
- Do not mix time axis and amount of funds
- Check not only good materials but also negative materials
- When using NISA and long-term funds, consider how to handle losses
- When in doubt, reduce your position or postpone it.
The more knowledge you have, the safer it seems, but in the market it can become dangerous if you use it incorrectly. The advantage of knowing the law of liquidity is that it is not a word that forces you to make a hasty decision, but it is realistic to treat it as a tool to pause before buying or selling.