I thought such an eye-catching title would be appropriate for an article on risk management. Often times, beginning traders forget the fundamentals of proper trading in their quest for instant riches in the stock market. Those of us who have been trading for some time now are fully aware of the danger in that type of thinking.
I was a cocky beginning trader. Soon after attending a stock trading seminar, I had several big wins. In my own mind, I was the exception to any and all stock market trading principles. I could do no wrong. My short-lived reign as a trading Adonis came to an abrupt end. All my money began raining down into the pockets of real stock market professionals. Fortunately, I wised up before it was too late.
In short, I was a young punk who knew everything about nothing. I often times had to learn things the hard. Learning to trade in the stock market was no exception. So, here are my top three ways to prevent an STD.
#3 Way To Avoid An STD
Perform thorough market research! Taking proper research for granted is a one-way ticket to Brokeville. Trust me, I know. Due diligence is required in order to side step a poor stock decision. Remember, getting into a bad trade is simple...getting out is costly. Give market research the time and attention it deserves.
#2 Way To Avoid an STD
Remove hope from your emotional make up when trading! Wishful thinking is a dangerous mindset to be in when you are a stock trader. Hope and wishful thinking lead to irrational decisions based on emotions rather than factual information. Going down with the ship is far from an act of nobility. You will make mistakes. As a trader, you must be willing to make corrections quickly. In the stock market, making too many errors, too fast will certainly cause you to be prematurely ousted from the markets if you do not adhere to the method #1.
#1 Way To Avoid an STD
Make use of a protective stop loss! After placing your order, ALWAYS set a protective stop. Failure is not to far off in the distance for a trader who handles the duties of risk management in the absence of a stop loss. A stop loss is not perfect but the only insurance policy a trader has against stock trading career ending losses. Stop being a philanthropic trader who continues to give money away to the markets.
Using a protective stop loss continues to be the most effective method of risk management. Fortunately, it is also the easiest of the three to apply. Methods 1 and 2 are developed over time as you gain experience. Simply use my top three ways of preventing an STD and you have cut your chances of getting burned.
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