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Loss arising from one trade will affect the entire portfolio if the too much is risked in that one trade. One should not invest a large portion of his portfolio in one trade unless he is strongly positive in that trade.
2.Decide on the percentage to be invested in one trade:
One should invest a fixed percentage (maximum 10%) of his portfolio in one investment and follow the rule rigorously. This will significantly reduce the stress levels experienced when the market goes against the investment.
3.Diversify the investment:
Ideally one should invest his wealth in all asset classes such as equity, mutual fund, commodity, insurance, realty, etc. Thus, any unwanted shock arising in one asset class would not lead to a significant decline in the investment. Diversification reduces risk, and helps improve the longevity of investment.
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