How To Minimize Losses In Online Trading
Losses are inevitable in stock trading. In fact, the biggest gainers in stock trading today have suffered from significant losses in the past and still lose money once in a while. The key to maximizing your gains in online trading is minimizing your losses. Here are a few tips to keep your losses at a minimum.
Expect to lose money
In order to minimize your losses you need to decide on how much money you can afford to lose. You need to be ready to lose all of the money that you are investing so make sure that the amount you are risking will not make you bankrupt. Also, you need to carefully set how much you need to gain to keep you satisfied. Your goals must realistic. Goals that are too difficult to reach will only result to disappointment.
Educate yourself
You need to develop your trading skills by educating yourself. The more educated you get, the more you can minimize mistakes. Educating yourself does not necessarily mean formal education. You can learn through reading stock trading books, talking to seasoned stock traders, reading stock trading newsletters, and taking swing trading or day trading courses. You also need to update yourself with the stock market as changes may happen each minute.
Develop Technical and Fundamental Analysis
Technical analysis and fundamental analysis are the two main schools of thoughts you should learn before you start trading. A fundamental analyst looks at a company's financial statement. On the other hand, a technical analyst looks at the chart (stock market movement). Although technical analysis and fundamental analysis are considered as polar opposites, many successful traders have managed to combine the two schools of thoughts. If you can mix some components of the two schools of thoughts, you can use one analysis to reaffirm your decision on the other. If you can't analyze charts and financial statements, then you are a gambler and not a trader. A gambler can't control his losses, a trader can minimize them.
Develop an Exit Strategy
Trades are a part of your business portfolio, which is a part of your wealth. You need to walk away when you are losing a significant part of your wealth. The exit strategy when you are losing is simple; walk away when you have lost what you can afford to lose. The difficult part is running away when the market is on your side. You will be tempted to hold on to your stock until it reaches its peak. But the market can dramatically change in an instant and you may end up on the losing end. You need to stick to your goal. If your goal is to double your money, once you have reached 100% profit increase, cash out and enjoy your profits.
If you want to be successful in online trading, you should not be afraid to lose. If you have the proper knowledge and the right expectations, you will make some serious money.
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