Tag: investment

Risk Management Tips for Stock Traders

Risk Management Tips for Stock Traders

Risk management is very important, but often ranks very low on the priority list of most traders. They often overlook the importance of managing risk in their positions or trades. It is normally way behind finding a better indicator, more accurate signals or worrying about stop hunting and unfair algo-trading practices.

As a trader or investor, this is the only thing that can be managed or controlled. Traders can never control or dictate the directions of the markets. They can also never manipulate whether they will win or lose in any position they take. Indeed, the only thing they can take control of is the amount of loss they might incur.

A trader who has produced great profits over his or her lifetime can lose it all in just a single or two ruthless trade, if proper risk management is not applied. Many people can trade, but not all are capable of analyzing the risk and manage the risk in a way that secures and ensures their financial survival in the markets when things go bad.

Without proper knowledge about risk management, profitable trading is never possible. A trader needs to know how to manage his risk, size his positions, create a positive outlook for his performance, and set his orders correctly, if he wishes to have a profitable trading journey.

This article will suggest some tips for risk management in stock trading.

  1. Recognize your risk

Some of the factors that might cause a risk to your trading are: politics, interest rates, liquidity and even the prices of other assets. Know, recognize and learn all the probable risks connected with the asset you are about to trade, and you can begin to go on your way reducing them early.

  1. Prepare your risk limits

Prior setting the line of the profit you are aiming for, think and decide how much you can afford to lose. Your trading plan should composed of how much loss you can take in the whole, and on each individual trade.

  1. Know how to acquire losses

You can actually set stop losses accordingly, if you know your risk limits for each trade. Moving a stop loss on a losing trade, because you expect it might swing back into profit is rarely a nice idea. Leaving losses run on bad trades will make them even worse, never better.

  1. Evade emotional trading

According to a study in 2011, the negative impact of emotional trading can end up costing you 20% in returns over ten years. And it is not just responding badly to losses, as the complete happiness that comes with a progressive trade can be just as risky as the disappointment with a failed one.

  1. Don’t go along with the mob

Every individual trader has their own risk tolerance, and just because other traders are suggesting a trade doesn’t necessarily mean that it is a good fit or appropriate for you. This is actually right for stop losses and strategies as well. Just remember that you should know your own risk, and plan accordingly.

Good trading isn’t always referred to having the right stocks or the right prices. It is much connected to your ability and knowledge of managing your risk, and assimilating a strong risk management philosophy into your trading strategy.

Learn the Different Types of Trading Style

Learn the Different Types of Trading Style

A lot of people who get interested in trading are primarily acquainted with the financial markets through investing. The purpose of investing is to grow wealth slowly over time, and this has normally been done through  a buy-and-hold approach, making investments and allowing price to alter over time. Investors endure the unavoidable downturns with the anticipation that prices will, in the long run, rebound and rise over the long-term.

Selecting the trading style that best fits your personality can be a difficult undertaking, especially if you are a beginner trader, but it is certainly essential to your long-term success as a professional trader. When you finally found the style of trading that best suits you, a light often turns on and you may never look back. If you are not comfortable with your style or have not found a home in a specific trading style, you are prone to committing the biggest sins of trading.

The difference between the styles is based on the length of time that trades are held for.  Below are the different types of trading style you should learn about to help pave your way to becoming a profitable trader.

  • Scalping

This type of trading style requires trading within just a few seconds of each other, and often goes in opposite directions, as it is a very quick type of trading style. This style is very appropriate for active traders who can decide quickly and act on his decisions without reluctance. Impatient people often are the best scalpers, because they always anticipate their trades to get profitable promptly, and will exit the trade quickly if it is going against their trading whims. To become a successful scalper, you have to have focus and concentration. So, if you are a type of trader who easily get distracted, then scalping is not for you.

  • Day Trading

This type of trading style is more appropriate for traders who like beginning and accomplishing a task within just the same day. A lot of day traders would not think of making swing trade or position trade because if they do, it will cause them to stay awake at night knowing that they had an active trade that could be affected by price movements during the night.

  • Swing Trading

This type of trading style is well-matched with people who have patience for a trade, but once they have started a trade they want it to be profitable quite quick. Traders of this style almost always hold their trades overnight, therefore, those people, who get nervous holding a trade while they are away from their computer, are not fit for this style. Generally, this trading needs a larger stop loss than day trading, so it is necessary to have the ability to get calm when a trade goes against you.

  • Position Trading

This type of trading style is the longest term trading of all the styles and often possess trades that last for years. That means, position trading is very compatible for people who have more patience and least excitement. This style requires the ability to disregard popular opinion because a single position trade will often hold through both bull and bear markets. So, if you easily get persuaded by other people, then position trading is going to intricate on your part.

Aside from the reason that picking a trading style needs the flexibility to perceive if a certain trading style is not working for you, it also needs the consistency to stay with the right trading style even when it is not performing optimally.

Some Disadvantages of Portfolio Diversification

Some Disadvantages of Portfolio Diversification

Making your portfolio diversified across a number of various investment categories, such as stocks, bonds, and cash equivalents, and within categories, such as stocks from different kinds of companies and a mix of corporate and government bonds can help decrease your risk. But there can be some disadvantages to diversification.

Indeed, diversification is universally recommended to lessen the risks of losing money, volatility and emotional stress. However, just as it can limit downside by reducing the possible risk and volatility across a group of investments, it can also limit your upside. It is actually possible for diversification to increase your risk if it leads you to buy investments that are too risky or that you don’t even understand very well.

A more-diversified portfolio can also be more time-consuming to handle than a less-diversified one, because you need to follow and trade in more investments, adding more layers of diversification just to make sure you are following to them. If maintaining your diversification requires you to micromanage and trade more frequently, transaction costs could be higher.

Below are some disadvantages of diversification that you might encounter eventually in your investment journey.

  1. Incomplete Return

Diversification can help you from striking out,  but it also keeps you from hitting a home run. For instance, if you invest your money in five various stocks, and one takes off, the other four stocks hold back your total return.

  1. Cost

Typically, you have the option of investing through a full-service broker, a discount broker or an online broker. Each category of broker has a unique commission format, and they all actually charge commissions or transaction fees. Placing all your money into a single investment normally can end up to a lower total fee than investing the similar amount of cash to a number various investments.

  1. Missed Fortune

You are neither to make a huge profit from a single sector nor to suffer a huge loss, if your portfolio is widely diversified. If 5 percent of your holding unexpectedly spike, you will make far lesser profit than if 100 percent of your holdings were in that place. It is very difficult to forecast or predict where and when this will occur to an asset class or market sector. The more firmly your investments are focused, the greater risk you are actually taking, and this can lead to bigger losses or to bigger gains.

  1. Wider Exposure

You could experience some amount loss whenever some part of your portfolio declines in value, if your holdings are widely diversified. If the overall market is decreasing, it is more likely that your holdings will perform the same thing. When you diversify your investments, you safeguard yourself from extreme financial exposure, but at the cost of missing out on probable major profits.

  1. No remedy

If you invest in a number of different stocks that all end up to be problems, your portfolio will still lose money, even if it is diversified. That’s it, diversification neither guarantees a profit, nor completely secure you against a loss.

Why Investing is Important?

600x400.1

Warren Buffet once said, “Never depend on single income. Make investment to create a second source.” Buffet is an American business magnate, investor and a philanthropist. He is also known as one of the second wealthiest person in the United States having a total net worth of $78.7 billion. He developed his fascination in business and investing during his youth.

 

Another amazing quote goes like this, “Anyone who is not investing now is missing a tremendous opportunity.” This was stated by Carlos Slim. He is like Warren Buffet – a business magnate, investor and a philanthropist. Back in the years of 2010 to 2013, he was ranked as the richest person in the world. He always wanted to be a businessman and began investing at a young age.

 

They are just two of the richest people known in the world. Now, what do you think is their common denominator? First, they are fascinated with the workings of the business world. Second, they began investing — and not just investing, they began at an early age.

 

Why investing is important?

 

Imagine working your whole life for an employer. You might be doing well at the moment – getting raises each year, progressing with your career, having the means to buy a house and a fine car, going to vacations every year, eating out with your family and enjoying the good things in life. However, you get old and your skills deteriorate. You might be able to save some money for retirement, but do you think it would be enough to get you through old age?

 

When you do investment, you let the power of compounding interest aid you while you save. Thus, you start by slowly accumulating your wealth over time. It is not just a scheme in getting rich quicker, but a time tested method proven to be true and advantageous by billionaires like Carlos Slim and Warren Buffet.

 

What are the benefits of investing?

 

  • You are being given the means to use during cases of emergencies

 

Financial crises are a part of life. There are times that you just are not or cannot be prepared about everything. If you were hit by startling circumstances, would you have the means to make it through that period?

 

With investing, it is like you are creating a financial cushion where you can bounce once life has dragged you down unexpectedly.

 

  • You are making yourself financially secured.

 

This is somewhat analogous to having yourself build a large cash reserve. Financial security depends on how much you allot for your investment. Building large cash reserve may mean lessening your future financial anxiety and becoming more empowered in the future.

 

  • You are giving yourself the chance to fulfill your financial goals.

 

You might be dreaming of buying a big house, a nice car, finance your children’s education as well as fulfill other goals written on your bucket list.

 

  • You are creating your own wealth.

 

There are various investment options that help you out to grow your money in a couple of years.

 

  • You are preparing yourself to fight inflation.

 

Inflation is like a savings-eating monster. Every year, prices keep on rising. With investment, it helps you protect your funds against inflation.

 

Conclusion

As the old saying goes, “save for a rainy day,” but since that is an old saying, it does not apply anymore in today’s situation. Investing is a proven way to help build your wealth rather than purely saving. It helps you expand your capital. Now that you have seen the importance of investing, getting started should be the next step. The choice is left to you. Do you think that going for that choice would let you enjoy the consequences later on?

 

BWorld is here to help you reach your goal of becoming expert in the field of investing. We can help you learn, practice and master the art of investing. For further questions regarding online trading, commodities, stocks, technology, and economy – feel free to reach us here. We hope you will continue your trading journey with us. Let’s get started!