Top 3 Ways to Avoid An STD (Stock Trading Disaster)

May 17, 2009 by admin 

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Impending disaster looms on the horizon for beginning traders who do not adhere to proper risk management methods. It is easy for a rookie trader to get distracted by riches waiting to be had in the stock market. Anyone who has been trading stocks for a while knows and understands the importance of risk management. I would like to share my top 3 ways of preventing an STD (stock trading disaster).

Early in my career, I figured that not all the rules of becoming a successful trader were applicable to me. I was somehow the exception to the rule. In fact, I was so exceptional at losing money that I was on the fast track to bankruptcy. A few gargantuan losses quickly sobered me up.

In short, I was a young punk who knew everything about nothing. I often times had to learn things the hard. Learning to trade in the stock market was no exception. So, here are my top three ways to prevent an STD.

#3 Way To Prevent An STD

Do your research. If you have had a few profitable trades early on, you probably have taken research for granted. Trust me, I sure did. Giving research its due diligence is absolutely imperative in sidestepping a stock trading disaster. Remember it is much easier to get yourself into any situation than to bail yourself out of a bad one.

#2 Method Of Avoiding an STD

Make decisions based on facts not emotions! Hope and wishful thinking are two qualities that gamblers possess. Ever read about any successful stock market gamblers? Just face it; you will make mistakes along the way. It is a part of the learning process. As a trader, you must be willing to make corrections quickly. Making too many errors, too fast will certainly result in you being forced into retirement due to lack of capital if you do not adhere to the method #1.

#1 Way To Avoid an STD

Nothing protects you from an STD like a stop loss. After placing your order, ALWAYS set a protective stop. Trusting yourself with the duty of managing risk without one is a clear indication that you are destined for failure. Although far from being perfect, it is the only insurance policy a trader has against massive losses. By not setting a protective stop loss, you are just teaching us all a lesson in philanthropy because you are just giving your money away!

Using a protective stop loss is by far the most effective technique for limiting losses. Fortunately, it is also the simplest of the three to apply. Methods 1 and 2 are developed over time. Avoid getting burned with my top three risk management methods.

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