Stocks Risks

Planning Your Trades: As Chinese military general Sun Tzu's famously said: "Every battle is won before it is fought." This phrase implies that planning and strategy—not the battles—win wars. Similarly, successful traders commonly quote the phrase: "Plan the trade and trade the plan." Just like in war, planning ahead can often mean the difference between success and failure.

First, make sure your broker is right for frequent trading. Some brokers cater to customers who trade infrequently. They charge high commissions and don't offer the right analytical tools for active traders.

Stop-loss (S/L) and take-profit (T/P) points represent two key ways in which traders can plan ahead when trading. Successful traders know what price they are willing to pay and at what price they are willing to sell. They can then measure the resulting returns against the probability of the stock hitting their goals. If the adjusted return is high enough, they execute the trade.

Conversely, unsuccessful traders often enter a trade without having any idea of the points at which they will sell at a profit or a loss. Like gamblers on a lucky—or unlucky streak—emotions begin to take over and dictate their trades. Losses often provoke people to hold on and hope to make their money back, while profits can entice traders to imprudently hold on for even more gains. Always remember this is a Marathon not a sprint

Hedging: This is a useful practice that every investor should know about. In the markets, hedging is a way to get portfolio protection - and protection is often just as important as portfolio appreciation. Hedging, however, is often talked about broadly more than it is explained, making it seem as though it belongs only to the most esoteric financial realms. Even if you are a beginner, you can learn what hedging is, how it works, and what techniques investors and companies use to protect themselves. Hedging is a risk management strategy employed to offset losses in investments. The reduction in risk typically results in a reduction in potential profits. Hedging strategies typically involve derivatives, such as options and futures The best way to understand hedging is to think of it as a form of insurance. When people decide to hedge, they are insuring themselves against a negative event to their finances. This doesn't prevent all negative events from happening, but something does happen and you're properly hedged, the impact of the event is reduced. In practice, hedging occurs almost everywhere and we see it every day. For example, if you buy homeowner's insurance, you are hedging yourself against fires, break-ins, or other unforeseen disasters.