Trading is an activity that all of us love. Who doesn’t like the sound of cash, after all? However, there are times when even the best of us can make guesses that land wide of the mark. We are passing through one such time at present. However, seasoned investors have a defense mechanism to shield themselves during such events. It enables them to protect their portfolio by countering volatility. Here are some of the attributes of this defensive approach:
i. Respect Market’s Direction: First and foremost, every trader needs to respect the direction of the market. There are a couple of famous axioms doing rounds in the market such as “Bhav Bhagwan Hai” and “Trend is Friend”. They signify that every trader must respect the market’s direction without being stubborn. We all use different variations of moving average to assess the trend direction anyway.
ii. Financial Discipline: This is the most intuitive response for anyone. However, traders tend to become counterintuitive when the market becomes volatile. It could be because of the human biases driven by the sentiments of both fear and greed. However, risk management is always a key aspect of your investment. You need to follow strict stop losses to minimize your risk exposure. After all, every penny saved is as good as every penny earned.
iii. Avoid Leveraged Trading: Leveraged trading gives you a high return if you place your bets right. And if you don’t, you can end up losing your entire invested sum. The market keeps on swinging between highs and lows during volatility. Sometimes a stock might even buck the general trend without giving any clue. So, leveraged trading only exposes you to higher risks and hence, must be avoided.