Risk Factor In Stock Trading

One thing you must understand is that there are methods and strategies to solving problems and finding successful solutions. History is filled with incidents where leaders and common citizens alike have been faced with decision-making that involved some type of risks. Not all risks are negative, actually you make certain decisions in hopes of risking a positive outcome, knowing there may be a sacrifice in the long run. When King Edward VIII decided to marry an American commoner who also happened to be a divorcee, he risked giving up his claim to the thrown of Great Britain. In 1936, he abdicated the thrown for love and what he hoped would be a happily-ever-after marriage. He was taking a risk. What if a bus had hit her on the day after their marriage? No one can predict fate, not even the specialists at NYSE, or the market makers at NASDAQ, and certainly not you.

The bottom line is this � most people would rather risk their hearts, their credit, homes, lives, anything than money. Hard to believe? Think about it.

Each time you use your home as collateral for a loan, you are risking the very home you live in. Every time you fill out an application for a new credit card, you are taking a risk that nothing will happen to keep you from paying back that loan. Ever been laid off from work? If you�ve ever driven to work through snowy weather and icy roads, then you risked your life on that short trip. Ever been in a car accident? It�s no secret that hazardous weather increases the chances of an accident, and yet, more accidents occur on perfect weather days. Why? Because nothing is guaranteed. Based on all these risk taking scenarios in our lives, why is it that we seemed to cringe more at the thought of entering the stock market for the first time, or taking more of an active role with higher risks, even as a day trader?

One possible reason is money. Stock trading is perceived as gambling since the wagering risk is real capital. Another common aspect is the concealment of emotion. If you�ve ever watched an old U.S. western movie, then you�ve probably seen the cowboys playing a poker game as the camera swerves to carefully scrutinize each player�s face. The best players always keep a straight face, never revealing a good hand, a bad hand, or a decent draw. If you intend to play in the stock market, you�ve got to do the same.

The catalyst of stock trading is the extraordinary possibility of obtaining lots of money very quickly without having to labor your life away. It represents many American dreams and inspires our passions for taking unusual risks. Unlike gambling which only requires dumb luck, stock trading involves technical knowledge of the investment markets, emotional control, strategic maneuvers, ability to make historical predictions, and above all experience. When dealing with risk, the key isn�t having the guts to take a huge leap, but rather assessing the risk and managing it through a planned strategy. Never enter into a trade that will provide a poor risk-to-reward ratio. Weigh your costs as opposed to what you expect to earn in the process.

In other words, risking two points to gain half a point isn�t worth it. Pay attention to what�s happening in the market. When the market appears to be extremely strong, it may seem to be a good idea to jump on for the long ride or else miss out, but what you might actually experience is a sharp plummet. Historically this has been the case for many different investments. If everyone is taking a long position, then they are very confident and expect the market to soar even higher. To make this happen, more buyers need to enter the market. The reality is, if everyone is on the long side, then that doesn�t leave many people left to buy.