We should immediately note: in previous publications we talked about the advantages of investments and securities market. But we write educational articles not only to promote our services. We strive to really teach Kazakhstanis new effective ways of earning money. Therefore, we are not going to hide anything.

There is always a risk of loss in investments. Moreover, you need to immediately come to terms: every investor or trader will definitely lose money in separate transactions. No one has ideally profitable statistics in this matter. If someone affirms that makes money in 100% transactions, don't believe it.

Now when we have cheered you up with a "bucket of ice facts", let's continue our training.

There is no need to be afraid of risks, because they can be controlled. Control is about understanding three things: 

• Relationship between profitability and risk
• Your approach to the market
• No Credit Rules.

Let's consider them in detail:

I. Relationship between profitability and risk.

Often, this relationship is directly proportional: the higher potential profitability of a security the more funds invested can be lost in a negative scenario. Or the scale of losses may not grow, but their probability.

Schematically, it looks something like follow:

Hence immediately the conclusion: you can choose instruments depending on your profitability targets and risk tolerance.

• If you want to preserve your funds for a long time and receive a moderate profitability - do not "meddle" in small cap shares, IPOs, risky OTC transactions. Invest in top sustainable companies, trustworthy bonds and ETFs.
• Do you want to make money for a new car in three months? A dubious undertaking ... But there is no other way, you have to participate in more speculative high-profit ideas with greater risk.

An investment consultant will help you find the right instruments. Therefore, it is very important to discuss your expectations and opportunities with him in detail before starting the investment. Especially the possibilities. After all, a losing $ 2000 is funny for someone, but it is an unattainable luxury for someone.

But low risk tolerance does not mean that your lot is only low returns. To earn more, you can include high yield securities in your portfolio. Here, just the key word is portfolio. This means that you will be distributing funds between different instruments and ideas. And the portion of risky investments will be small.

II. Your approach to the market.

Are you a long-term investor? Are you looking for a fundamentally strong business and investing for years? Or are you an active trader, and each of your transactions lasts from a few minutes to several days?

Each of these approaches has its own type of risk management.

Long-term investors have three main ways to control risk:

1.     Let's repeat the idea outlined above. It will definitely not be superfluous! Distribute funds between different instruments and ideas. We are talking about the same "diversification" or the rule "do not put all your eggs in one basket." It has always worked, and it works now!

Benjamin Graham recommended novice investors to invest:

• 50% of funds in shares of the largest profitable companies from various sectors of the economy.
• 50% - in first-class bonds with the highest reliability ratings.

Further, having experience and understanding of the market situation, the investor can change this ratio up to 75:25.

And with even more experience, only 85-90% of funds can be allocated for reliable investments, and the remaining capital can be invested in IPOs and other risky transactions.

At the same time, we note that diversification should not be too broad. It is optimal to keep 10-15 companies in the portfolio.

2.     Invest gradually. Don't try to come to the market and invest a lot at once.

It is much wiser to regularly invest the same amount in certain shares. You can do it every month or quarter.

So if the price rises by the same amount, you can afford to buy fewer shares, and if the price drops, to buy more. The result: you lose less when the market falls and can gain more when the recovery begins.

3.     Don't make unnecessary actions. In stable market conditions, it is appropriate to revise the portfolio on a quarterly basis. You can do it even once every six months. You can set aside an hour or two a month to monitor the situation.

It is nothing good to keep an eye on your shares every 15 minutes. You will be nervous and make unnecessary rash transactions. Bad decisions, a lot of trading commissions ... Investor doesn't need all this.

We recommend active traders to control risk in four directions:

1.     Set a daily loss limit. This is the amount that you can afford to lose in one trading session. When the limit is reached the limit, the trading on this day must be forced to end. It is a big advantage if the trading platform has a function to block the account when the daily limit is reached.

Closed by limit, analyze your transactions, actions, psychological state. And then go to rest.

Ideally, you should earn at least twice amount of the limit per day. If this does not work yet, then the limit is too large, or you are taking too much risk.

In numbers, we recommend that the daily limit does not exceed 2-3% of your total capital. If you have $ 10,000 on your account, then the daily limit should not exceed $ 300.

The essence of such restrictions is simple: as long as you have money, there will always be a new trading day!

Perhaps there are really no opportunities on the market today, and you are trying to come up with them. May be, you are not in your best shape. In any circumstance, you can give yourself a chance. But it is unacceptable to lose all or most of the money because of this! The longer the trader retains capital, the better.

2.     Set a limit for each trade. To do it, the daily loss limit is divided into several equal parts. Typically, day traders make 4-6 trades per day. If your daily limit is $ 300, then it is enough for 4 trades with a $ 75 limit or 6 trades with a $ 50 limit.

The bottom line is again simple: you will not "put" everything on one idea and be depended on its success.

At the same time, if you have already suffered losses on 2-3 transactions in a row on a certain day, and have not yet reached the daily limit, we advise you to take a break! Take an hour break, take a walk. And continue trading after a good "exhale".

In each position, you should also strive to earn at least two to three times the loss limit for this trade.

3.     Immediately after opening a position, set a stop-loss. This is an order with a certain price, upon reaching which the platform will automatically close an unsuccessful position.

Some traders set stops in their "minds". They know a certain level at which they will definitely close the position if the price moves against them. But then, when the price reaches this level, they decide to sit out. They want to look and close on a possible recovery. As a result, they lose even more.

This is a mistake and a gross breach of trading discipline. Losing trades should be closed automatically. It doesn't admit of the human factor and emotions.

4.     Lock in profits by parts. You bought 300 shares and set the risk on the trade to $ 60. The price is up 30 cents, you can sell 100 shares. You will lock in a profit of $ 30 and cover half of your risk on this position. Keep the remaining 200 shares. The price has risen by another 30 cents, sell another 100 shares. The transaction is now completely "free" and you are up $ 30 on top! Sell the remaining 100 shares after another 30 cents. As a result, you will earn 30 + 60 + 90 = $ 180. Great result at $ 60 risk!

If, after rising by 60 cents at the beginning, the price reversed and did not go higher, you would have already locked in profit of $ 90. An unsuccessful trade could have been exited with a slight plus or zero. This is better than holding all 300 shares in the hope of making $ 270 and eventually losing $ 60.

III. Rule: no loans for investment

Everything is short and clear. You can only invest personal free funds. The ones you don't need in the coming months to buy food, clothes, pay bills.

No one can afford to lose money and still remain in debt to the bank! Nobody!

That's all. Follow these basic rules and you are more likely to be successful in the stock market!