8 methods to avoid losing your money in stock markets

Many people believe that stock market is similar to a wealth making tool, which can turn people into millionaires just over a span of time. Well, it’s true that lots of investors have really made profits via stock trading. However, it was possible just because they've made a few really wise choices by adopting good market knowledge and cautiously thought strategies. Such investors are much disciplined in the approach, which is the reason why they’ve harvested the advantages of stock trading.

When you’re out there, just thinking of a hundred ways to grow up your money, Jim Rogers has suggested a few methods in which you easily can avoid losing on it.

Recognize the market phase

It’s vital to find out what phase market is in presently. For instance, figure out whether it’s a trending or a trading phase. Consequently, you can sell/buy breakouts. One can sell strength and buy weakness if it’s the trading phase. Incapability to know the market sentiments can result in using the incorrect indicators in the incorrect market conditions.

Watch and then trade

If you aren’t as much experienced as the other traders, it’s advisable to view the market pattern during the very first half of trading day. It’s driven by emotions, effects of previous day and affected by overnight movement. You can take the trading decisions in second half after watching the trends in the very first half when the real trends come out during second half of the day.

Try to avoid hurrying up for booking profits

It might be quite tempting to book the profits early at times. However, according to Jim Rogers, avoid doing it as long as your market looks accurate. By doing so, you could be allowing for substantial trends even if you’ve got an excellent entry in the markets. If you wish to secure your own profits, you may do that in stages, thus keeping some level to take benefit of the remaining of the trend. The ideal blend should include small profits, big profits and small losses.

Never purchase a stock depending on its past performances

Stock markets usually moves in phases. In case, it goes up in one phase, it can come down during the other. It, in fact, depends on the performances of the financial system. So, if the financial system of any country is doing very well, then stock market goes up as well as vice versa. The stock, which gave some returns the earlier years, may not provide similar returns in current year. Returns will not only depend on the company’s movements, but also on state of the country’s economy and market conditions. Although it is good to know about the past performances of a company stock performance always, it is dangerous to depend on it completely.

Don’t get swayed by adverse events

An adverse event may not result in negative impacts necessarily on the stock markets. It actually is based on nature of the events. You have to analyze the probable impacts, it can have on the overall economy, and then approach to a logical ending on the impacts it can have onto the stock markets, says Rogers.

Treat every trade like just another trade

Always keep in your mind that each trade is another trade and normal profits only should be anticipated every time. Supernormal profit does occur, perhaps hardly ever, but shouldn’t be expected. Keep in mind that you should boost your risks only when the equity grows sufficiently to service those risks.

Majority doesn't win always

Just how we discuss with a lot of people to take right decisions in our own personal life, traders must avoid talking to lots of people during the trading hours, in order to avoid chaos and confusion. However, it is an excellent idea to talk with skilled traders after the market hours to get perspective on their opinions on the market. Just say, if market is too volatile, it actually can be advantageous if you back off just for a moment, even if the masses don’t agree.

Diversify, but don't exceed it

Avoid investing all your wealth in just a single stock as if it gets you win then its fine, but if not, then your investment is completely gone. Diversification assists you under such a circumstance where even if 2-3 sectors underperform; you can be gaining from other sectors. The diversification of investments is must to mitigate risks. However, don’t over-diversify since having lots of stocks in your portfolio may not generate a significant worth for you.