Stock Market Investment: How to mitigate market risks and make money

September 02, 2021 12:00 PM

Without a proper risk management strategy, an investor can lose all his generated substantial profits in just one or two wrong trades.

Even if you have achieved the expertise level in trading, it’s vital to keep yourself updated due to the ever-changing nature of the financial market.

Trading in stock markets is always synonymous with risks. Do you know why? It’s due to the ever-changing nature of the financial market & the variance in returns. While volatility makes trading a bit difficult, it is also an ideal gateway for many new revenue opportunities.

Let’s take the current scenario into account. Since the pandemic struck, the volatility of the market has increased. And this is exactly where the factor of mitigating trading risks comes into the picture. It’s important to embrace risk management techniques, especially during high volatility periods, in order to cut down losses. Without a proper risk management strategy, an investor can lose all his generated substantial profits in just one or two wrong trades.

Indeed, it’s true what global business leader Gary Cohn said, “If you don’t invest in risk management, it doesn’t matter what business you are in, it’s a risky business.” Let’s dive deep to find out what steps can be taken to weather the volatility and book your profits.

Know that the market is uncertain

Without any doubt, we know that trading is perplexing and loaded with uncertainties. You may generate more profits one day, and there may be discrepancies in the same market value the other day. Substantially, it’s very important for traders and investors to accept the world of stock market. They must understand how the market works, stay at the top of their game and also, stay invested with patience for making profits in the longer run. These are a few crucial steps to remain buoyant in the trading business.

Take advantage of market ebbs and flows

Traders and investors usually have a tendency to curdle the blood and start questioning their investment strategies, especially during high volatility periods. This is particularly true in the case of novice investors. They often get tempted to pull everything out of the market and wait on the edge until it seems safe again to dive back in. However, if even new traders take a rational and disciplined approach, the inevitable fluctuations of the market prices can easily help you create amazing revenue opportunities. Remember that it’s vital to take your time in understanding the firm’s fundamentals. Then later, you can set a target price for its shares. So, when the pessimistic mood of the market drives the price below your set target, grab the opportunity to invest in that stock. And when the euphoric mood of the market increases your target price, grab that chance to sell those shares and generate high profits. The key to success is always based on a pre-decided strategy.

Keep a check on your emotions

Patience and knowledge — the two main requirements when it comes to investing in the stock market. The oscillation of investors without the ‘know-how’ of trading is perilous. Individuals must understand that market fluctuations are the natural result of the persistent strife between bulls and bears. Investing, of course, entails some degree of risk. It’s very important to get a hang of your emotions, which otherwise, can leave you in unacceptable loss situations. For successful trading, never let greed sway your thinking. Keeping your emotions in check will provide you the discipline that you need to plan and act decisively, rather than make impulse decisions or chase performance due to recent winning trades. Always think twice before making major shifts. Remember that overcoming behavioral biases at both, peaks and valleys, of the market is a crucial element while making wise investment decisions. Just because other investors have decided to exit the market, it doesn’t mean that you would, too, blindly follow the crowd. No wild predator chasing you! Wait, think and then take action.

When in doubt, sit tight

It’s okay if you’re not sure where the markets are heading. Just staying put or on the edge can never turn out to be a bad idea in the case of trading. Volatility periods come and go. So, sometimes, the best trade is to make no trade at all. Rest, the broking houses are now a dial away to help you to decide on your investment strategies.

Review your process

Even if you have achieved the expertise level in trading, it’s vital to keep yourself updated due to the ever-changing nature of the financial market. The market continues to evolve and always leaves a room for improvement. On one hand, sometimes staying put is the only viable option, but on the other hand, it’s important to keep upgrading your knowledge in order to make the best bet. For successful trading, you must invest your time in learning about new market reforms. Reviewing your past techniques and processes is also the key. Staying afloat in the volatile market always depends on a trader’s psychological ability.

Summing up

The ebbs and flows are a part and parcel of joining the market. If you are a smart investor, you would know how important it is to manage risks in order to protect yourself against volatility periods. Focus on your objectives and don’t let short-term volatility derail your long-term investment plans.

(By Palka Chopra, Senior Vice President, Master Capital Services)

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1How parents can leverage their US market portfolio for study abroad dreams of their children
2Can you opt for a home loan to construct your house?
3ESIC scheme adds 13.21 lakh new members in July 2021