Before you start stock trading, I would like a simple philosophy that can make the difference between the market share of success and failure. What I say is not secret or commercial trading giant Holy Grail. There are already hundreds of these products out there for sale. Unfortunately, most of them do not know what I have to discuss with you.
Two simple words, “risk control” is one of the most important things to keep in mind when trading with trading stocks or other markets. “The dealer, who controls the risk, the operator who controls his destiny.” Simple as that statement sounds, it is very important and well remembered.
Let’s talk about risk control for a moment. An important part of risk control is the amount you risk on each trade. Say, a broker has $ 100,000 in its operating account, and bought 1000 shares of XYZ stock at $ 100 per share. The securities dealer has substantially all of its eggs in one basket.
I can not say one way or another, what happens with this particular operator. The stock has risen tenfold, and in fact makes him a millionaire. On the other hand, there is also the possibility that the stock price go. If that happens, has about $ 0, then the distributor will have all his money and lost opportunities to participate in business opportunities in the future.
The example above is a sample of two simple scenarios. The first scenario is that anyone who has high hopes of trading. The second scenario is that some traders to lock in their heads, while secretly keeping my fingers crossed.
The point of all this is that the dealer should be above any kind of risk control at the site have had. There are some basic ways to control risk, could have been used. The first thing we had to limit the amount of the above accounts, which runs the risk referred to by trade. The amount to risk per trade up to the individual trader and his trading plan. Some typical quantities between 1% and 10% of the capital account, with 10% in the top. Even if our hypothetical seller would have dared to 10%, and losses would be much less, $ 10,000 instead of $ 100,000 have been.
The other basic type of risk management in stock trading is a stop-loss order. stop-loss orders are designed to close the trade if the share price reaches a certain price level. For example, our hypothetical trader selected have put a stop-loss price level of $ 90. If you decrease the price of the shares and then recover our merchants lost $ 10 per share. This is of course much more attractive than the loss of $ 100 per share.
When you start stock trading and enter the “home run” mentality. The initial goal should not be a home run, but to stay in the game. With the stay in the game. You are given many opportunities, many more in stock trading profits.