Minimizing Risk

How to Minimize Your Risk

No investment advisor likes to admit it, but no stock picking system is perfect. Sometimes, the stocks they think will explode don’t meet expectations. Even worse, sometimes the stocks lose money.

There may not be a foolproof system to predicting the stock market, but there is a foolproof system for managing risk. Using these three simple steps, you can reduce the risk in your stock picking plan.

Three Ways to Take Risk Out of the Stock Market

1. Screen Your Picks.
   • This might seem obvious, but patterns that look like they are developing into predictable trends do not always follow through.  You may have to comb over thousands of stock charts to find ones that will work for you.
2. Get In. Get Out.
   • Five Chart Patterns preaches setting realistic target exit prices for all stocks. Lock in high returns while the stock is high, and get out before the market has a chance to change its mind.
3. Set Tight Stop Losses. 
   • This step is absolutely critical to minimizing your risk in the stock market. If a sure-fire winner turns out to be a fizzled-out dud, your system needs to have a built-in, abandon-ship trigger. That is, you need to know when to cut your losses and move on to brighter prospects.

For example you may want to set your stop-loss trigger around 3%, so if a trade starts to go south, your loss will be limited to 3% of your investment. If you want to start receiving daily charts, sign up for our Chart Advisor newsletter.