Most people shy away from the financial markets because of the risks involved.  Their impression of investing in the financial markets is that it is similar to gambling in a casino.  In this last installment, we talk about risk management and why the financial markets should not be feared of.

Risk is prevalent in every situation in our lives.  Everyone is aware that the risk of getting into a car accident is very high. But this does not stop people from driving. Everyone is aware that there are risks of getting hurt when one has a failed marriage or relationship. But this does not stop people from marrying or getting into a relationship. In those instances, people first study the situation, determine the risks involved, find ways to manage them, and are rewarded in the end by doing so.  Similar to relationships and driving a car, the risks involved in stock market investing/trading can be managed properly. And those who do manage the risks properly do get rewarded - by achieving high profit returns.

1. Acquire the Knowledge.

Before someone tries to dive the ocean, he/she first acquires the knowledge on the equipment needed and how to use them.  He studies the procedures or sequences in diving.  Ignorance of these things basically put him in a very high risk and danger of fatal accidents.

Similarly, the ignorance of how financial markets work pose the risk of losing money.  Lack of knowledge is a lame excuse. 

Financial education is easy to reach these days.  Our college education teaches us fundamental analysis while technical analysis is available through seminars, books and dvds.  Even tools such as charting softwares are available with sophistication and ease because of information technology.

Simply put, learning is of utmost importance and easy to gain.  It only takes enthusiasm to take the first step. If you wish to learn more about trading via technical analysis or fundamental analysis, you may contact us at zigtraders.com

2. Money Management

We always here the old saying: "Never put your eggs in one basket."  This is something applicable not only in one's  financial portfolio as a whole but also for specific trades in the capital markets.

When an investor purchases stocks in the market, it is best to spread out his funds to a set number of stocks.  Trading all your money in a few number of stocks is very risky while having too much can spread out profits too thin. Thus we recommend that you trade at least 4-6 stocks at a time only.

Allocating funds into 4-6 stocks is risk aversion.  If an investor pumps in 100% of his account fund into just one stock and the price turns against him and lose as much as 20%, then he loses 20% of the whole fund.  On the other hand, if diversification is applied, losing 20% in one stock can easily be recuperated by other profiting stocks thereby decreasing the impact to the account.

3. Create A Trading System

Much have been said about creating a trading system repeatedly.  Up to this last part about financial markets, we give stress to it once more. 

Having a trading system gives focus and meaning to your trades.  It gives you direction on where your portfolio is going and makes sure that the losses are controlled so that the goal can be achieved.

The permutations are endless.  Different people have different ways of trading and you should search for that suitable system that your personality can handle.

4. Instill Disciplined Trading

Putting up a trading system takes time but that can be achieve easily with extensive research in back testing, practice and enhancing it.  However, even if a trading system is in place, the challenge of an investor or trader is to follow it.  The financial markets is not a venue for the half-hearted investor or trader.  The challenge is to "stick to the code" and that code is your trading system.

If an investor or trader keeps on changing his mind on entries, exits and holding time even with a trading plan in place, it clearly shows that he has not completely submitted himself to the code and that his emotions are affecting his trades.

5. Emotion Management

The previous write up has clearly shown the emotional nature of the financial markets.  Because of this, an investor or trader should be able to manage his emotions well and should try to trade as mechanically as possible.  Lack of emotion management begets lack of discipline in trading which are both deadly ingredients that equate to a losing portfolio.

Zig Traders hopes that the series of articles we have published introduces you to the financial markets in order to give you a general knowledge of how it works.  We take pride in giving investment advice through consultations that will guide you through your career in trading or investing in the financial markets.  For those who have the time to trade, newsletters are available to give you leads on what to trade or invest in.  You can get a flavor of these newsletters by registering here.

On the other hand, if one is very busy and does not have the time to trade, we do offer first-class fund management to generate exceptional and sustainable growth of capital for our clients. As shown in our previous articles, the Zig Traders system has outperformed any mutual fund here in the Philippines and even abroad.