Minimizing Investment Losses
How can you differentiate between genuine investment opportunities and pitches that are just intended to part you from your capital? Everyone has heard the term ‘Ponzi scheme’, but do you know what the inception of that reference is? Charles Ponzi came up with offers to investors in the 1920s that promised a 50% return for investments over only a 45-day period, and an irresistible 100% over 90 days. As everyone soon found out, the dirty little secret was that Ponzi was simply paying off initial investors with money from new investors, keeping the rest for himself. Obviously this ‘investment’ will catch up with both the creator and the participants eventually, resulting in tragic losses for the investors and hopefully significant jail sentences for individuals like Ponzi or more recently Bernie Madoff.
The moral of the story is that if any investment opportunity sounds too good to be true, it probably is. There are always unscrupulous ‘brokers’ sending out mail solicitations and with technology it’s common to be deluged with emails and internet notices presenting investment opportunities that “can’t miss” or will make you rich beyond your wildest dreams.
Truth be known, investing successfully is not easy and it’s not for the faint of heart. Day trading and managing your risk takes research, constant observation, and at least a basic understanding of investment vehicles and techniques that help you limit losses. No one is 100% perfect at selecting winning investments, even if you’re Warren Buffet. There will be losers in your history – you just need winners that outpace them.
Practices to Minimize Investment Losses
There are a number of primary ways to protect yourself from staggering losses and to enjoy profitable trades:
Protect your gains – when you have successfully chosen a winner, protect the profits that you’ve realized. Your strategy should include an exit point for selling. When you reach that point, follow your pre-determined decision and avoid being greedy. This ensures that you keep the gains you had hoped for.
Use stop loss options – use the ‘stop loss’ capability on your trade to limit the impact to your account when your trade goes south. You will never be right 100% of the time, so get used to that fact and move on. Stop loss actions will at least protect you from a total loss of your capital.
Make informed trades – if you can’t identify a clear picture or trend that indicates it’s time to buy, wait until one comes by – it will. Buying on “gut feel” or just an emotional hunch is not the way to succeed.
Leave emotions out of your trades – speaking of emotions, when you aren’t feeling particularly attentive or psychologically prepared for a trading session hold off until you are. Trading requires clear thought and quick decisions to be profitable.
Use the charts – there a wide variety of indexes and charts available to traders in real time that give you a moment-by-moment view of overall market trends and details of any particular stock, ETF, commodity, or currency that you want to follow. Learn how to use them and which ones pertain to your particular trade strategy.
Use an online broker you trust – there are numerous online brokers who can handle your trade activity. Evaluate their available options, hours of availability, fee structures, and support offerings to help you determine the one that meets your trade requirements most effectively.
Following these basic guidelines will help get you to the level of profitability you seek while limiting your risk.
Guarding Against Investment Losses
Your online broker can provide you with the tools needed to leverage your trade strategy for profitable sessions.
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Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.