Trading involves huge potential earnings, but associated risk too. As, there is a common principle of “good risk to reward ratio” which means the higher the profit is, the greater risk is going to be associated with it. Usually, it goes as higher the risk, the greater the profit will be, however, there can be an imbalance between the gain and the risk. Therefore, it is essential to evaluate the risk, you are desired to take, before performing any trading order.
Essential practices to overcome risk:
(1) Capital Diversification: it is a strategy of dividing the capital in certain proportion and then, invest that each proportion in different assets. As, due to the high rate of market fluctuations, there is great risk of losing the entire invested amount if there is only one investment is being done only in one financial security. Therefore, this practice will reduce the risk of losses.
· (2) Stop-loss: It is important to use the stop-loss practice while doing trading orders, which assist the traders to not to loss beyond a certain amount of loss. Basically, it is a technique where a trader pre-determined risk he is willing to take, if the market conditions are going against his decision, and then stop trade at certain price with minimum loss.
· (3) Trading plan: It is necessary to plan before opening a trade due to the market fluctuations. A trader can not just buy or sell any financial security based on his instincts, if someone does so, it can lead that person to huge loss. Moreover, planning must include opening and closing time of a trade, risk you can take, number of trades you are going to perform at that time and so on. It will prevent you from overdoing the trading orders.
· (4) Trading strategy: Trading can be performed in four strategies (such as, scalping trading,
day trading, swing trading and position trading) and those are distinguished on
basis of holding time of a trade. A trader must opt one of the trading strategies
which is the most profitable for him while performing trading.
Information about trading you may need:
How does trading work and how it is becoming an income source: https://manpreetkaur365.blogspot.com/2024/02/trading-becoming-new-source-of-income.html?m=1
Basics of trading everyone should know about before starting trading: https://manpreetkaur365.blogspot.com/2024/02/trading-basics-of-trading-traditional.html?m=1
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