It’s a general statement that you got to take huge risk to get big rewards.
This is not always right.
In stock market, minimum risk & maximum profit is certainly possible and this system is called asymmetric risk: reward.
Kyle Bass and Paul Tudor John, two of very successful Fund Manager from USA are known for their amazing asymmetric risk: reward.
Kyle turned $30 million into $2 billion by finding an investment opportunity where he risked only 3 cents for the opportunity to make $1.
Paul always looks for what he calls a 1:5 investment – where if he risks $1, he believes he can make $5.
Asymmetric risk: reward is one of the best ways to get higher returns.
There are four ways to go for minimum risk & maximum reward opportunities:
- Stop Loss: Always put SL and cut your losses short. Avoiding losses in the market is not possible however minimizing losses is always possible. If you don’t cut losses short, you finally tend to lose big because losses in the market are inevitable. This is the best way to ensure small loss sufferings in the market.
- No Target: Target limits your profit however open target helps you to hold your winning positions for long. Market Legend Jesse Livermore says, “Holding my winning positions, helped me to make huge money from the market.”
- Follow Trend: Holding an investment unless the trend gets reversed, generates the chances of making maximum profit in a particular trade.
- Pyramiding: Learn and implement the art of pyramiding. In this process when the market moves in favor of your holdings, you trail SL which minimizes your risk and then you increase your holdings in the same scripts. Increasing holdings at the later stage will fix a minimum loss and increase the possibility of huge return.
Resolving one doubt about pyramiding, huge capital is not required. In fact, you can use broker’s Limit for your advantage here. Once you are sitting with winning position, the more you trail SL, more positions can be bought with the broker’s limit. This is how you use broker’s leverage positively.
Its simple however requires discipline. If you can follow them, you can make huge gains by exposing a minimum capital of yours.
Now you can’t complaint – I have less money and hence I am not able to make good profit.