When a beginning trader is first starting out, their risk for losing money in the stock market is at its highest. There are several reasons for this, most of them pretty obvious:
They lack experience in picking the right stocks They are not experienced in reading the right entry and exit points They make mistakes, like chasing a fast riser as it increases
If you are getting started trader and you plan to trade stocks quickly and try to make your profits fast, then you should incorporate these other ways to minimize your risk:
1. Diversify Your Portfolio - The most common way to minimize risk is to diversify your portfolio. Even if you are a trader who is buying and selling stocks quickly, you should not invest your entire fund in one stock. Spread your fund out over five or more stocks at a time. Even this is a very small number compared to the number of stocks that make up a mutual fund. But it should be fine if you are just starting out with a fairly small fund.
2. Don't Buy Penny Stocks - Penny stocks are popular for many traders because they offer a way to make big gains fast. However, for the beginner, the down side to them is that they also offer a way to take a big loss fast. If you are not confident in your ability to read the technical indicators, it is best to stay away from them for now.
3. Use a Stop-Loss Order - A stop-loss order is a sell order that you place right after you buy the stock. You set the "strike" price, or the price it will trigger the sale, below where you bought the stock. This gives you automatic protection against a stock that unexpectedly drops in price. While you will take a small loss, you are prevented from taking a huge loss, and that is a good thing.
4. Don;t Trade Low Volume Stocks - Low volume stocks refers to the average number of shares traded for a stock each day. If you own a stock that is not performing well, you would probably put in a sell order at a set price. If that stock is a low-volume stock, the problem is that there may not be a buyer out there willing to buy that stock at your asking price. This spells trouble when you are desperate to get out of your position. Set your volume limit at 100,000 shares traded per day. If you do, you can be pretty sure there will always be someone out there to buy when you are ready to sell.
Download my free guide, 7 Steps to Online Trading Profits to learn how to get your online trading going fast and profiting quickly at http://www.beginningonlinetrader.com/
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