Even the most experienced stock market traders are wary of volatile markets. That’s because of the huge risk involved – general elections, sudden drastic news, or even the country’s budget announcement can affect the market in a positive or negative manner leading to sudden movements in the stock market. That’s where risk management comes in.
When you learn to manage your risk, nothing can affect you drastically. This reduces the downside for you and there is literally no limit to the upside.
Stock market expert Vishal Malkan has been trading the markets since he was 16. He has literally lost it all multiple times and come back again with added learnings. Today, he has made it his life’s mission to train those who are interested in entering the stock market by helping them avoid all the mistakes he has made. The most important lesson according to him is how to avoid big losses.
The idea is to minimize your risk when trading. When you limit your losses, the final profits can be not only good but mindblowing. Several of Vishal’s students have actually given up their jobs and have taken up stock trading as a full-time career after attending his courses.
Statistically, most people lose money in the stock market, and the few times they make money is not enough to cover their losses. However, if you use the stop-loss strategy, you can limit your losses, and increase your profits on the upside. This strategy entails knowing when to buy and knowing when to exit a stock.
Trading in the stock market is a game of probability, true. No one can predict whether a stock will go up or down with 100 per cent accuracy. Hence, you are bound to make losses. The trick is to reduce your loss by knowing when to exit the stock (for example, keeping a fixed percentage exit point). Let’s say, you decide to take a maximum loss of one per cent of your investment capital with each trade, and stick to this modus operandi. In such a case, you will almost never run out of your capital, provided you pick your stocks with care.
A small loss is called a ‘happy loss’ and you should be willing to take it because you can again get into the market with another strong stock. But when you suffer big losses, you may not be able to come back – there is the risk that you will burn your fingers and decide never to trade again. Hence, cut your losses as soon as possible.
Technical analysis is one strategy that traders swear by – it tells them when to enter and when to exit. However, you need to stick to simple strategies and not make it too complicated. Secondly, do not let emotions get the better of you. Many traders don’t understand this side of the business and give in to emotions resulting in losses.
Vishal believes that besides learning strategies, it is equally important to train your mind to handle emotions. His book #CASHTAGS – How Anyone Can Get Started in the Stock Markets and Level up as a Power Trader teaches precisely three things – having the right mindset, simplifying the stock market to a child’s level, and teaching strategies such as risk management which will hold you in good stead in the market. In fact, he even holds regular free seminars which he announces on his website.
If you’re really interested in getting into the stock market, educate yourself before you take the plunge. Blindly investing on the basis of tips or news could be detrimental. The learning will make it worth your while. All the best and safe trading.