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Questions and Answers
What is the primary purpose of diversification in trading?
What is the primary purpose of diversification in trading?
- To maximize potential losses
- To concentrate investments in one sector
- To increase transaction costs
- To reduce the risk of any single investment (correct)
How does position sizing help in risk management?
How does position sizing help in risk management?
- By determining how much to invest based on risk tolerance and overall portfolio size (correct)
- By maximizing the amount of capital risked on each trade
- By encouraging large, risky trades
- By ignoring overall portfolio size
What is the function of a stop-loss order?
What is the function of a stop-loss order?
- To automatically close a position when the market moves in your favor
- To limit potential losses by closing a position when the market moves against you (correct)
- To increase your investment in a falling market
- To guarantee a profit on every trade
What does a take-profit order do?
What does a take-profit order do?
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What is the recommended risk-reward ratio to aim for in trading?
What is the recommended risk-reward ratio to aim for in trading?
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What is hedging in the context of trading?
What is hedging in the context of trading?
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Why is it important to regularly review and adjust your trading strategies?
Why is it important to regularly review and adjust your trading strategies?
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How can traders maintain discipline and control their emotions?
How can traders maintain discipline and control their emotions?
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Why is patience important in trading?
Why is patience important in trading?
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What is the ultimate goal of risk management in trading?
What is the ultimate goal of risk management in trading?
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