According to Forbes, more than one out of two Americans are struggling with finances. One in three Traders will suffer a catastrophic loss at some point during their career. However, there are three simple risk measures you can employ right now to not only prevent the catastrophic loss, but to place you in the Top 1% of Traders and Investors!
#1 Lower your Position Sizing
Resist the urge to go in with 50% or even a 25% of your entire account balance. It does not matter how confident you may feel, the ‘sure thing’ is rarely that in Trading and Investing. If you only risk 2 to 20% of your account balance, this should help shield your cash from disappearing (too quickly anyway).
#2 Stick with a proven Management Plan
If you’re a seasoned trader, you may have heard of the ‘Golden Rule’ of Trading. It’s the idea of keeping your Reward to Risk ratio at 2 to 1. This means, if you’re aiming for a 20% target, you should only be willing to accept a max loss of 10%. All too often, traders buy a stock without even considering an exit strategy. The stock market is no place for ‘Let’s wait and see how it goes’ strategy. Know the point at which you will cut your losses early before things spiral out of control. Don’t ever think ‘It can’t possible go any lower!’ It can.
#3 is to Qualify Positions with Checklists
Checklists can save you money. Ideally you want to qualify Trades with common similarities recognized by all Traders and Investors as ‘good signs’. Wait for multiple signals that are good news for shareholders, and research any events that are commonly known as ‘bad signs’. For example, a check for previous Reverse Stock Splits is one thing I always check for. This can save you time, money and future headaches.
Reverse Stock Splits are always terrible news and a sign a company is struggling. Companies that have implemented Reverse Stock Splits most likely are not a good Trade or Investment. Create your own checklist with similar items to slow down the trading process and really consider if this opportunity is worth your hard-earned money.