Article Facts

Trading the stock market is an emotional game. While you may be a logical person and think with reason in the real world all of that goes out the window when dealing with money. Just look at why casinos have made it so big, people just bet without thinking about it. To prevent you from falling into the same shoes as a gambler here are 3 questions you should ask yourself the next time you are buying a stock.

1. For What Reasons Am I Investing Into This Stock

Why are you actually getting into the stock? Is it because you heard somewhere that it is going to go up and you didn’t want to “miss out”? Or you have some fundamental or technical reason for getting into the stock. Unless there is something solid backing your decision it may be better to just walk away.

2. How Do I Limit Risk

Even if you believe that your stock is the next Microsoft you may still lose all of the money that you put into it. Because of this it is important to limit your risk, this way you do not end up losing your entire account on one bad trade.

Maybe you want to only risk a small portion of your account on that one stock, or maybe you want to place some sort of stop to get you out of the position if the stock falls against you too much. Either way, it is important to limit your risk; otherwise you will lose all of your money on the first bad trade you make.

3. Do I Have An Exit Plan?

Something that people often forget is their exit strategy. Sure it is important to know when to enter, but even the best entry signal in the world will not help you out that much if you lose it all by holding onto the stock for too long. Figure out what you are trying to accomplish beforehand. – 35634

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