Smart Ways to Minimize Losses in the Stock Market

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In 2015, Nestle went into a major slump in the Indian market wherein its stock fell from INR 7000 to INR 5500. This was a result of the ban imposed on Maggi noodles. However, as history has shown us, great companies will almost always have the capacity and capability to put things in order sooner than what people expect. Ever since, Nestle’s stock price has only gone upwards.

So, can individual investors learn something from the likes of Nestle? How can one minimize losses in the stock market? Here’s what we suggest:

Be Decisive   

When it comes to investing, it is important not to panic and make off-the-cuff reactions to negative news. Investments must always be made solely on the qualitative and quantitative aspects and not as a knee-jerk reaction to market forces.

Diversify, diversify, diversify

Investors should have a portfolio of 5 to 6 trades so that even if they hit a couple of losses, they will still be able to make money in the other open positions. On the other hand, investors can choose, say, 10 stocks from different sectors and each stock should be considered as a leader in its respective sector. This diversification will definitely help them minimize losses in the long run. All this should be worked out in tandem with your risk appetite and your investment/trading plan.

Do Your Research

It is also important to note that even for trading, basic historical fundamentals need to be checked at least once before putting your money on something. It is a good thing if traders and investors form teams of like-minded people so that they can effectively filter out promising trades as a team. By doing so, the negative emotions and mistakes will be kept under check. Similarly, an investor can also take the help of a certified professional advisor for investment opinions.

Understand your Risk Appetite

Another key aspect in keeping losses minimal is to avoid leverage. Take only manageable trading positions so that your rational thinking facilities are not corrupted with fear.

Be Patient  

Wealth cannot be made in a day. It is important to be patient. Investing is an art and every individual must learn about his/her risk-to-reward ratio before getting into the stock market. Lastly, only when investors and traders follow a disciplined approach will they be able to minimize their losses and maximize their profits.