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Managing risk in stock market trading and investing is essential for preserving capital and achieving long-term success. Here are some key strategies for managing risk effectively:
Diversifying your investment portfolio across different asset classes, sectors, industries, and geographic regions helps spread risk and reduce the impact of any single investment's performance on your overall portfolio.
Implement stop-loss orders to limit potential losses on individual trades.
Determine the appropriate size of each position in your portfolio based on your risk tolerance and the potential risk of each investment.
Establish clear risk management rules and adhere to them consistently. Define maximum loss thresholds, risk-reward ratios, and portfolio diversification targets to guide your investment decisions and limit downside risk.
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