Explanation Upper, Bottom stock market Circuits

To mean a sudden and huge change in either stock price/index, term circuit is used. While the term upper circuit denotes a good profit is gained, bottomed-out circuit denotes a loosed gallery.

Mainly the news makes the stock markets or specific companies to make and break through the circuits. Very good news makes the markets to hugely rally and vice versa.
Some examples, of the circuit formations are:
- When the sub prime crisis beaked in the January of 2008, the stock markets recorded a huge fall and recorded bottom circuits.
- After the announcement of Satyam scam, the company stock hugely falls and touches bottom circuits.
- After the win of U.P.A government with the consistent majority, the stock markets made a huge rally and touched upper circuits.

Sometimes rumors also make the markets or stocks to make circuits.

There are certain regulations over these heavy price fluctuations occurring in stock markets. Trading would be interrupted for some time by exchanges when primary circuits are touched. And trading will suspended for whole day if markets or stock prices again touched final circuits. These circuits will be fixed at certain levels huge percentage of raise or fall.

Stoppage of trading at upper circuit a mandatory is to prevent mis-use of stock markets. While interruption at lower circuits helps to protect the investors, investment from heavy losses.

These circuits had of very importance for day traders. They may generate profit rain, as well as huge losses.

Generally, on esurience of a good/bad news stocks with low float value had always risk of breaking circuits. Even small buying or selling by investors will reflect in large changes in stock prices for these stocks.

Recommendation: Book profits whenever your stock achieved a good amount of profit never wait for greedy returns, as touching upper circuit many times followed by fall. If your stock ended in bottom circuit, hold it for atleast two further days, If that stock is fundamentally strong tag it in your long-term portfolio or consider averaging.