Every successful business has a risk
management plan. And stock Trading is a
business! Here is how to manage risk when
trading stocks.
STEPS:-
1 Cover your expenses every month. Then concentrate on achieving a steady growth in earnings.Rather than striving for the big hit, protect your capital first and work for consistent returns and take more aggressive risk with a portion of profits.The big hits and home runs will still come along, but they come along without excessive risk. 2 Base your stock trading business philosophy upon 3 principles (in order of importance):
Preservation of capital – preservation of capital leads to consistent profits, which makes pursuit of superior returns possible.Consistent profitability Pursuit of superior returns
3 Preserve capital and money management. This is the cornerstone of stock trading. Risk is the prime concern.Before asking "what kind of profit can I make?", ask first "what potential loss can I suffer?". This is astute stock trading risk management.A storekeeper takes a risk every time he stocks new merchandise. If it does not sell, he will lose money. A smart businessman takes only risks that will put him out of business even if he makes several mistakes in a row.
4 Define your risk. As a stock trader, you are in the business of trading. You need to define your businessman's risk - the maximum amount of money you will risk, or lose, on any single trade. Plain and simple, these are basic risk management principles:There is no standard amount of money to risk, just like there is no standard business. An acceptable businessman's risk depends on the size of your trading account, and your trading method and pain and tolerance.
5 Be aware of emotional trading. Trading is so exciting that it often makes stock traders feel high, and then suddenly very down. Nobody can get high and make money at the same time. Emotional trading is the enemy of success. Fear and greed are bound to destroy a stock trader. A real professional stock trader does not get too excited or down about wins or losses. This is proper psychology both for stock trading, and for maintaining a healthy, enjoyable life (hopefully with a few profits from stock trading, but worthwhile enough even if one happens to have losses).
6 Focus on being the best. The goal of a successful professional in any field is to reach his personal best. You need to concentrate on trading right. Each trade has to be handled like a surgical procedure - seriously, soberly, without sloppiness or shortcuts. This is a stock trading risk management plan. A loser cannot cut his losses quickly. When a trade starts going sour, he hopes and hangs on, and his loses pile up. And as soon as he gets out of a trade, the market comes roaring back.
Trends reverse when they do because most losers are alike. They act on their gut feeling instead of using their heads. The emotions of people are similar, regardless of their cultural background or educational levels.
Emotional traders go into risky gambles to avoid taking certain losses. It is human nature to take profits quickly and postpone taking losses. Emotional trading destroys those who lose. Good money management and timing techniques will keep you out of the hole. Losing traders look for a "sure thing", hang on to hope, and irrationally avoid accepting small losses.
management plan. And stock Trading is a
business! Here is how to manage risk when
trading stocks.
STEPS:-
1 Cover your expenses every month. Then concentrate on achieving a steady growth in earnings.Rather than striving for the big hit, protect your capital first and work for consistent returns and take more aggressive risk with a portion of profits.The big hits and home runs will still come along, but they come along without excessive risk. 2 Base your stock trading business philosophy upon 3 principles (in order of importance):
Preservation of capital – preservation of capital leads to consistent profits, which makes pursuit of superior returns possible.Consistent profitability Pursuit of superior returns
3 Preserve capital and money management. This is the cornerstone of stock trading. Risk is the prime concern.Before asking "what kind of profit can I make?", ask first "what potential loss can I suffer?". This is astute stock trading risk management.A storekeeper takes a risk every time he stocks new merchandise. If it does not sell, he will lose money. A smart businessman takes only risks that will put him out of business even if he makes several mistakes in a row.
4 Define your risk. As a stock trader, you are in the business of trading. You need to define your businessman's risk - the maximum amount of money you will risk, or lose, on any single trade. Plain and simple, these are basic risk management principles:There is no standard amount of money to risk, just like there is no standard business. An acceptable businessman's risk depends on the size of your trading account, and your trading method and pain and tolerance.
5 Be aware of emotional trading. Trading is so exciting that it often makes stock traders feel high, and then suddenly very down. Nobody can get high and make money at the same time. Emotional trading is the enemy of success. Fear and greed are bound to destroy a stock trader. A real professional stock trader does not get too excited or down about wins or losses. This is proper psychology both for stock trading, and for maintaining a healthy, enjoyable life (hopefully with a few profits from stock trading, but worthwhile enough even if one happens to have losses).
6 Focus on being the best. The goal of a successful professional in any field is to reach his personal best. You need to concentrate on trading right. Each trade has to be handled like a surgical procedure - seriously, soberly, without sloppiness or shortcuts. This is a stock trading risk management plan. A loser cannot cut his losses quickly. When a trade starts going sour, he hopes and hangs on, and his loses pile up. And as soon as he gets out of a trade, the market comes roaring back.
Trends reverse when they do because most losers are alike. They act on their gut feeling instead of using their heads. The emotions of people are similar, regardless of their cultural background or educational levels.
Emotional traders go into risky gambles to avoid taking certain losses. It is human nature to take profits quickly and postpone taking losses. Emotional trading destroys those who lose. Good money management and timing techniques will keep you out of the hole. Losing traders look for a "sure thing", hang on to hope, and irrationally avoid accepting small losses.
Risk plays an important role when we trade in Stocks. However, risk management is extremely necessary for every trader.
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