Risk Management

Risk Management for Investors

Whether you are just beginning to save for a goal or are well on your way to achieving your goals, a disciplined approach to investing should be an integral part of your investment plan.

Treat Trading Like It Is a Business

Trading should be treated like it is a business. This is true whether you are trading part-time or full-time. Produce a Written Trading Plan is an important first step (discussed below).

Rules to Live By

Understanding trading online or DAT, market psychology and technical analysis is all very well and good, however, they all must be controlled to be useful. Control, therefore, speaks of a plan, and the implementation of the plan is governed by discipline. This whole concept of a systematic approach to trading is considered risk management. Risk management involves two basic controls – discipline and capital preservation.

Trading Psychology

Like a game of chess or even in athletics, psychology plays an extremely important role in trading. On top of gaining the basic knowledge of the market’s structure, the mechanical skills of order sending, the ability to recognize patterns over a long period of time, and to manage risks, the market has built in to it the challenges of both individual and crowd psychology that a trader must learn to contend with as he progresses from novice to expert. Because the market is an extremely competitive environment, traders are constantly faced with challenges that will test the limits of their psychologies and skill in balancing the necessity to protect capital over taking advantage of previously recognized patterns.

Preparing to Trade Live

Initially, while you are familiarizing yourself with the stock market, the computer system you will trade on, and the trading style you feel most comfortable with, it is recommended that you "trade on paper" – writing down where you would get into and out of a trade while watching a market window or a chart or both. This way you will get comfortable with what is happening on the screen, without worrying about actually performing a trade.

Beginner's Mistakes

Beginner Trading Scenarios - things sometimes don't go as expected. Here are 8 trading tips to get you through some of those situations.

How to Pick Stocks

Which stocks you trade is going to depend on a number of issues, including your level of experience, how much capital you have available, and what style of trading you are doing (time horizon – day trading, swing trading, position trading, investing). Your criteria for how to pick stocks should be written down as part of a trading plan (see Risk Management for more details on developing a plan). Your trading plan is dynamic, and, thus, will evolve as you continue to learn and uncover your strengths and weaknesses. Also, your personality type will play a part in the types of stock you trade.

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