How to avoid big losses
in electronic stock trading
Every day trading basics
for profitable stock market trading systems
Every trader and investor wants the best results of electronic stock trading. It basically means that their stock market trading systems should be profitable and should generate expected results in specified period of time.There could be different expectations for electronic stock trading systems. Short term day or swing traders would like to have every month profitable . Mid term investor or position trader would target more longer period of time. They will target quarterly or 6months periods. They will not calculate results for every month as their traders could last more then several weeks or months.
Risk and money management
in electronic stock trading
There are several key stock trading terms that can help to achieve these expectations. I am not going to discuss about
stock picking
now. Stock picking is important part of any
stock trading system
but there are also other important issues that should be incorporated into best .
stock trading plan
Trade results
of stock market trading systems
There are four
possible results
for every stock trade. Risk and money management rules together with proper trade management techniques help to achieve best outcome for every trade.Most of traders and investors think that the most important aspect how to achieve profitable results in electronic stock trading is to have all trades profitable. It is mistake. The key element of profitable trading or investing is to understand that losing trades are inseparable to profitable trades. Every trader will make trades that produce gains and trades that produce losses. It is not possible to make only profitable trades ! There is a key to understand it and act accordingly. Every trader or investor should understand that it is not possible to predict what will be final result of any individual trade. Based on this knowledge it is possible to manage every trade individually in accordance with
trade management
rules. So using
stop loss
and other risk management techniques is a key. Most profitable traders and investors have often only 50% of all trades profitable. My personal experience based on my
stock trading journal
entries is that even when I do only 30% of profitable trades I am able to avoid losing period. As you can know there are better periods and worse periods in trading. It is not always the same. There is quite common to have more quite neutral periods when trading profits will be minimal. And then the big profit period will come and make the money for you. The experience of best stock traders and investors is that 30% of profitable trades is enough to achieve break-even results. And 50% of profitable trades means that such trading could make huge monthly gains. But ratio of profitable and losing trades is not enough. There are also other critical elements that provide further help. They can prepare and manage trades to avoid big losses. And
big loss
is something that everybody wants to avoid in stock trading and investing.
Risk management
This is one of key stock trading terms that is often mentioned. It is not very too much discussed when discussion is about investing. But I think it has similar importance for long term investors and also active investors as it has for stock traders.Managing the risk for every individual position or trade is critical. Without proper risk management it is almost impossible to achieve long term goal of profitable results. The key for stock trading terminology is
risk reward ratio.
Every stock trade should be prepared in accordance with this simple concept that use probabilities and statistics.
Money Management
Another key element in stock trading and stock investing is to properly
use money
that are available on electronic stock trading account. Proper usage of available funds with knowledge how to utilize margin is important knowledge of every stock trader or active stock investor.
Final words about these stock trading terms
Good traders and investors understand that losses will occur. But what makes best and profitable traders is how they are able to manage these losses and how they avoid big losses in their trading activities.
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