Smart trading always starts with knowing how much risk you’re willing to take – what is a comfortable level that you can incur while trading. As trading volatility is a constant concern there exists approaches which do lower your chances of larger losses.
Identifying how much risk is tolerable depends on your individual finances and trading goals. The higher the risk and potentially the higher the returns, while lower risk strategies will likely earn you less.
A simple example will suffice to make the point. If a $500 investment will return you only $50 in profit, but puts you at risk of losing only $50, this trade can be seen as not very attractive. While generating $200 profit by risking still only $50 might seem more worthwhile. By understanding your tolerance for risk, your trading decision will be better formulated.
The objective of lower risk strategies is to make more consistent and steady returns that are more predictable in relation to more aggressive forms.
What is the preferred Low risk strategy?
The most commonly used technique is the classic “buy and hold.” The gist on this one is to avoid constantly changing your portfolio with different assets, while focusing on keeping assets that have provably shown long history of low and steady returns. This form of trading/investing requires a long-term investment approach. The kind of assets you should include are bonds, familiar blue-chip stocks in sectors such as tech, energy, healthcare and financial services.
To achieve the goal of lower returns and lower risk, value investing strategies should be considered. This requires to identify firms with a solid established industry history that may be undervalued compared to peers due to a recent event that hurt their grown. This kind of trading lets you capitalize on the upside – their long history while reducing the downside risk.
How to build your portfolio
The best approach to building your low risk portfolio is by diversifying your assets as much as possible, thereby reducing sudden and steep losses. The general rule is to allocate less than 10% of all your available trading capital into a single asset. For a low risk strategy a mix of stocks and indexes should make up around 50% of your total, with 20% in bonds and another 20% in a precious metal such as gold. The remaining 10%, in an asset such as currencies where higher potential for appreciation exists.
As a cautionary note, there are times when you might be tempted to take a short position on a stock. This kind of trade means that you believe the asset will fall over time. Borrowing an asset to sell and buy back when the price is down can be a profitable trade, but if the price doesn’t go in the intended direction, the losses can be massive. These trades should be avoided if you’re looking to trade within a low risk strategy.
Adapt trading to your circumstances, choose your trading risk level enjoy the thrill of profitable trading
Are you ready to trade?Sign up with Your capital is at risk
- A New President and All-time Highs
- USDJPY Daily – Possible uptrend in the works
- Sideways Markets Face Challenges from USD and Data Releases
- How to Safely Trade the Current Markets 13/01/21
- Gold Weekly – Bearish momentum on the rise
- FTSE 100 and GBPUSD are Making Moves – But Keep Your Eyes on the Dollar 11/01/21
Safest Forest Brokers 2020
|Broker||Info||Best In||Customer Satisfaction Score|
|#1||Your capital is at risk Founded: 2011||Global CFD & FX Broker||
BEST FOREX BROKER Visit broker
|#2||CFDs and FX are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Founded: 2010||Global Forex Broker||
Low minimum deposit Visit broker
|#3||Your capital is at risk Founded: 2014||Global Forex & CFD Broker||
Best Trading Conditions Visit broker
|#4||Your capital is at risk Founded: 2006||Globally regulated broker||
BEST CUSTOMER SUPPORT Visit broker
|#5||Your capital is at risk Founded: 2014||Global Forex Broker||
BEST SPREADS Visit broker
Stay up to date with the latest Forex scam alerts
Sign up to receive our up-to-date broker reviews, new fraud warnings and special offers direct to your inbox