SHARETIPSINFO >> Articles Directory >>Taking risks in stock trading
There is no denying about the fact that stocks market investment has got risk associated with it. If you are investing in the stock market you can not completely eliminate the risk factor associated with stock trading. But if your follow some simple principles while trading in stocks you can surely reduce the level of risk from your investment. But before we start telling about these measures let is first discuss that reasons behind the risk of trading in stock market as that will help you to realize how you can minimize these risks.
Factors that make stock trading risky – The price of the stocks are influenced by so many factors. The overall trend of the stock market, trend of the sectors and most importantly the performance of the company directly influence the price of the stock market. Besides these factors, the economic and political condition of the country, trend and position of the foreign exchanges all play a vital role in ups and down of stock prices. So as an investor you have to keep constant vigil on these aspects to take profitable trading decisions. Therefore, you have to be very much careful while trading in stocks to ensure that you can reduce the risk and make profit at the stock market.
Deciding on your trading plan – To make sure that you effectively manage the risk of trading in the stocks you have to first decide on your trading pattern. Depending on your fund and ability to take risk you have to choose the right stock trading option. As a stock trader you have so many options to invest in stocks. You can do long term investment, you can do daily trading or you can choose to trade in derivative segments. All these stock trading options involve different amount of risk. Which option you will choose to trade will depend on your objective that means what you are looking forward to gain from stock market. For instance if you want play safe at the stock at market you should ideally invest in the clue chip and large cap stocks for longer period of time. The stocks of these companies might not grow at the stock market as rapidly as the new breed technology companies but they will certainly move up in a steady manner. On the other hand if you are ready to take greater risk for maximum return from your stock market investment, you can choose to invest in the derivative segment or you can opt for margin trading. Both these methods of trading at the stock market surely give good returns but have greater risk.
Taking the right trading decisions – Undoubtedly this is the key point for managing your risk at the stock market. Taking the right trading decision means, choosing the right stocks and investing in them at the right moment. So there are two aspects of smart trading at stock market – for the first point that is for choosing the right stocks you have to pick up the stocks that have the maximum potential for appreciating in the future. To determine or to find out the stocks that are most likely appreciate in the future you have to apply the methods of fundamental analysis. In fundamental analysis certain parameters like earning, debt, and asset of the companies are considered to see the financial position of the company. It is believed that more the company is fundamentally strong the better is the chance for appreciation in the stock market.
Then of course come the second point that is determining whether it is the right time to invest in the chosen stock or not. This is important because every stock has an optimum price level for a given period of time. Every stock take a time to reach that level and once it attains that price level it either stays there for quite sometime or gradually falls. So if the stock that you are considering for investment has already reached optimum price level for that time period, you can hardly make any profit by investing in that stock. So it always better to determine whether it is the right time to invest in your chosen stock or not. The only way to do that flawlessly is by the way of technical analysis.
So just follow these steps and reduce risk of investing in stock market.
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