Making profits at every trade in a volatile stock market is an ideal scenario every investor hopes for. But the truth is that losses are inherent in the stock market. So, what should an investor do to survive in the market? The answer is managing risk by exiting losing trades early and cutting the losses short. At least try to minimize losses through stop-loss technique, if avoiding is not possible.
Cutting losses means to save yourself from high loss possibilities. Small losses are easy to recover and you will be able to invest the next day. No investor wants to sell stocks for a loss. But cutting losses can prevent you from suffering a ruinous loss that’s too hard to recover from.
As an investor and trader, you will learn a lot and implement techniques after getting experience. But there is no harm to follow the rules observed from the experience and mistakes of others in online share trading. And that golden rule is to always cut your losses so that you will be ready – mentally and financially – for tomorrow’s investing. Identify if it’s time to hold or sell stocks before it gets out of hand. Take corrective action otherwise, you will have to bear unrealized capital losses.
How To Minimize Risk?
Profitable trading is not only finding opportunities and making profit but also managing risk. The following are the practices to be done by an investor to cut losses and be the winner with small losses:
- An Investment Strategy
Only a planned investment can work for you. For disciplined trading, an investor must have a strategy based on quantitative factors of investing to buy and sell stocks. So that there will not be any place for emotions. Bring discipline in selling stocks before the losses burst.
- Stop Overtrading
Whenever investors face losses in the stock market, they are tempted to trade more to cover the losses. But, this is a critical mistake. Due to such temptation, there will be a lack of required research and resultant a slippery slope. Remember patience is the key in the stock market.
- Set Stop Losses
Stop-loss order is the pillar of stock trading. What you need to understand here is that once the stop loss is in place, do not even try to adjust it if the stock moves downwards. Instead, adjust it when the stock goes upward.
- Have Reasons to Sell a Stock
Investors research to know when and why to buy a stock, but forget to set reasons to sell stocks. You may think that what are the boundaries and reasons to sell a stock. What would you do if you came to know the bad news about the corporate world, or you found that an analyst has lowered the price target? Simply these are the reasons to sell your stocks and the time to be an informed trader.
- Risk Over Returns
The stock market is an investment platform with a fair share of returns and risks. Manage the risks first to enjoy future returns. Risks such as the volume of the invested capital or the timing of your market entry are some of the risks that need to be analyzed and minimized.
- Track Trades and Analyse Mistakes
Analyze your mistakes in trading and develop a plan to learn from the trades that go wrong. Analyze and prepare detailed notes about the missteps and conditions that did not work in your favor such as exiting the market too soon or entering a position too late. Make sure you never repeat them.
After getting insight into becoming a successful trader, you may want to know how to open a trading account.
You can consider discount brokers which provide an online trading platform and flat brokerage per trade. Low brokerage rates are important for you to maximize your profits from trading.