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Safe Investing: How to Reduce the Risk of Loss When Trading Stocks

 

October 14, 2020 (Investorideas.com Newswire) The stock market offers the very appealing possibility of significant gains as the result of a few choice decisions. However, the greater the potential for profit, the more likely it is that there will be an equally major loss. If you're planning to start trading soon, you'll probably want to take steps to prevent any unnecessary or avoidable losses that may result from mistakes or poor handling of your portfolio. Read on to find out about some of these approaches.

Stick to a Carefully Formulated Plan

One of the best things you can do to reduce the risk of making a loss is to set yourself limits, budgets and rules from the start. Retaining a level of discipline will help to prevent you from becoming your own worst enemy. First, decide on the very specific types of investments you plan to make. If you stick to a certain field, you'll gradually gain expertise, making predictions easier and success more likely. Next, give yourself a strict spend limit. This could be per day, per week or per month. Doing so will prevent you from being tempted to splash out on a risky transaction. You could even impose a limit on the amount of time you spend interacting with your portfolio per day. In fact, this is a very healthy idea, as we'll explain later. You can make as many or as few rules as you want, and they can be as draconian or as relaxed as you prefer. The most important thing is that you stick to them.

Listen to Advice from Other Traders

If you're tempted by a particular transaction, but you're unsure, seek the advice of another trader who has no ulterior motive. You should feel free to read all the expert guides and the latest market updates, but take them with a very small grain of salt unless you're absolutely confident of their source and its objectives. They may involve a level of bias. To balance out that prejudice, talk to any successful experienced traders you know personally. They're often better placed to understand your techniques, budget and tendencies well, and might impart valuable lessons that they had to learn the hard way.

Spend Time on Algorithms and Probabilities

There are numerous books and online guides available that will help you to learn how to predict the movement of the market and calculate your next move. This is absolutely worth doing. Oftentimes, stock market success has very little to do with luck; the biggest players are often the people who put in the hours perfecting their technique. Also, be sure to choose the best trading platform for the strategy that you're using. There are lots of options out there so it may take some time to get familiar with the pros and cons of each.

Select Moving Averages that Cover a Longer Term

This is particularly relevant to active traders with a little more experience. If you focus on longer term moving averages, it means you won't be tempted to sell up when your stock drops briefly. It's vital to learn when to quit and when to hang on and play a longer game.

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