How to Reduce Stock Trading Risks

1. Universal Asset Management Tokyo Japan Universal Asset Management Tokyo Review Hibiya Kokusai Bldg, 7F. 2-2-3 Uchisaiwaicho. Chiyoda- ku. Tokyo 100-0011. Japan +81 3 4578 1998 info@universalassetmgmt.com How to Reduce Stock Trading Risks When it comes to stock trading, there are a few things you can do to lower your When it comes to stock trading, there are a few things you can do to lower your risk. risk. Many stock novices lose money investing online because they underestimate the Many stock novices lose money investing online because they underestimate the danger involved danger involved universal asset management tokyo universal asset management tokyo. They either mindlessly trade in . They either mindlessly trade in the stock market or any other market based on guru's the stock market or any other market based on guru's advice advice or suggestions from or suggestions from friends. These are folks that are out to make you friends. These are folks that are out to make you fail. fail. Ratio of Risk Ratio of Risk- -to to- -Reward Reward You must assess your risk before engaging in any transaction or purchasing any You must assess your risk before engaging in any transaction or purchasing any stock. You shouldn't buy it if the danger outweighs the gain. A risk stock. You shouldn't buy it if the danger outweighs the gain. A risk- -to to- -reward reward ratio of 1 ratio of 1- -3 is recommended. That instance, if a stock is trading 3 is recommended. That instance, if a stock is trading at $10 and has at $10 and has the potential to rise to $13 or fall to $9, it is an excellent one to trade. the potential to rise to $13 or fall to $9, it is an excellent one to trade. However, if a company selling at $10 has just a one However, if a company selling at $10 has just a one- -to to- -one risk one risk- -reward ratio and reward ratio and has the potential to only move up to $11 or down to $9, you should avoid it since has the potential to only move up to $11 or down to $9, you should avoid it since the risk the risk- -reward ratio is only one to one. reward ratio is only one to one.

2. Remember that there are over 7,000 stocks listed on the NASDAQ, NYSE, and AMEX, and Remember that there are over 7,000 stocks listed on the NASDAQ, NYSE, and AMEX, and you can always discover stocks with a risk you can always discover stocks with a risk- -reward ratio of 1:3, so why would you reward ratio of 1:3, so why would you spend money on a stock with a risk spend money on a stock with a risk- -reward ratio reward ratio of 1 of 1- -1? 1? What's the best way to locate equities with a decent risk What's the best way to locate equities with a decent risk- -to to- -reward ratio? reward ratio? Search for support and resistance if you're a technical trader. A stock to monitor Search for support and resistance if you're a technical trader. A stock to monitor is one that is trading around the support and is a long way from the resistance. is one that is trading around the support and is a long way from the resistance. Additio Additional than support and resistance, however, there are also other things to nal than support and resistance, however, there are also other things to consider. You don't want to trade against the trend, so be sure the stock is consider. You don't want to trade against the trend, so be sure the stock is trending up. You want to acquire equities that have taken a momentary dip in price, trending up. You want to acquire equities that have taken a momentary dip in price, giving you a better ch giving you a better chance to buy them. ance to buy them. Make a loss stop. Make a loss stop. You should set a stop loss for your stock once you've identified low You should set a stop loss for your stock once you've identified low- -risk stocks to risk stocks to trade. Remember that even with a favourable risk trade. Remember that even with a favourable risk- -to to- -reward ratio, the stock can reward ratio, the stock can still go against you. Your risk is reduced by using a still go against you. Your risk is reduced by using a stop loss on your stop loss on your investments. You don't want to wake up one morning to discover that your stock has investments. You don't want to wake up one morning to discover that your stock has gone bankrupt and that all of your money has been lost. gone bankrupt and that all of your money has been lost. Diversification Diversification Another technique to reduce trading risk is through diversification. This implies Another technique to reduce trading risk is through diversification. This implies that you do not put all of your money into a single stock that you do not put all of your money into a single stock universal asset universal asset management tokyo review management tokyo review. You'll put them into a variety of equities, ideally from . You'll put them into a variety of equities, ideally from various industries and sectors. As a result, you will not be adversely affected if various industries and sectors. As a result, you will not be adversely affected if a particular industry suffers a setback. As a general gu a particular industry suffers a setback. As a general guideline, don't put more ideline, don't put more than 10% of your portfolio into any single stock, and don't put more than 30% of than 10% of your portfolio into any single stock, and don't put more than 30% of your portfolio into any single industry. your portfolio into any single industry.