Successful investing includes good money management (prevent you from losing too much money in any one trade) and portfolio diversification (prevent you from losing too much money in any one industry).
Money management and portfolio diversification reduces risk.
Always use a sell-stop order.
To reduce investment risk in my portfolio, do the following:
- Maintain positions in 12 to 20 stocks where possible
- Select stocks from different industry groups
- Select stocks from companies of varying size and financial performance
- Use exchange-traded funds (ETFs) that track indexes or sectors
- Buy small numbers of shares so you can hold stocks for the intermediate to long term when necessary
To protect your investment capital, do the following:
- Sufficiently plan your trades so you know how much risk you plan to take
- Select the right position size to fit your desired risk
- Use stops that correspond to your risk and position size
- Diversify your portfolio