One might wonder why a profit/loss account is necessary when investing is about extreme highs and extreme lows the simple answer to this is that investors are only human beings. When taking a loss, investors too get disappointed and demoralized; to be a disciplined and courageous investor, one must adopt a strategy like the profit/loss account.
What is the Profit/loss Account?
A profit/loss account is a plan that sets a limit of loss or gains that a retail investor will take on a stock; it’s a sensitive strategy as containing losses is an important part of forex trading. A profit/loss account enables a trader to recognize what they do wrong in failed trades that result in losses and helps them avoid making the same mistakes twice.
Working Out Your Plan
Working out or deciding on a plan may sound like an easy task, but really it’s the hardest part about the whole profit/loss account strategy.
To start, you need to decide on the maximums and minimums that can’t be the same for each stock that you hold. To effectively devise a plan, you must use your analytic skills as a trader to understand that each stock needs individual attention and the trader needs to learn how much the capacity of each stock to move in either direction is, to do this most investors use fundamental analysis while some use technical analysis or even a combination of both these techniques to determine the right limits for gains and losses.
Something that also needs to be taken into consideration when a trader is deciding on what profit/loss account is to be formed is your patience and ability to withstand risks amongst other factors like your time frame and characteristics of the trader.
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