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How To Control Your Risk In Stocks.(A)(INVESTOR'S CORNER)
Byline: DAVID SAITO-CHUNG
Ask a few friends to close their eyes. Then ask them what words come to mind when they think about the stock market. Most likely, they'll say the word "risk."
Yes, day in and day out, stocks carry higher risk. You never know when the "sure thing" will drop 10% or 20% in a session on some bad news or negative comments.
But you're not reading this column to find out how to get the most out of your tax-free municipal bonds. You want to make big profits in stocks. And you can -- so long as you tame your risk.
Keeping your risk minimal involves a few steps. First and foremost, buy stocks only when the market is in an uptrend.
Research on past bull and bear markets shows that at least two out of every three stocks follow the market's general trend. From March 2000 to the end of March 2001 -- one of the toughest bear markets ever -- three out of four stocks priced at least 12 a share at the start of the period lost ground.
By buying only in good markets, you stand a greater chance of hopping on to a big winner. While this sounds like common sense, rallies do occur in bear markets and entice us. But as the market in 2000 and most of 2001 showed, these rallies don't last long. The way to avoid these fake-outs is to first confirm there is strong leadership from a few growth sectors.
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