Don’t worry, I’m not going to scare you away with big formulas and P/E ratios like financial advisers normally do when talking about stock trading. I’m going to share with you several simple rules of thumb that I have learned the hard way (luckily with fake portfolio trading) to reduce risk when implementing any form of stock trading.

  Before I get too far into this, I must make sure that you know my credentials.  I am not a financial adviser.  I am merely discussing the things that I have learned by stock trading with fake money.  Don’t worry, it’s perfectly legitimate and legal.  I don’t actually get any real money out of the deal, but I do gain experience by doing it. 

   In a few words, fake portfolio trading is pretending to buy and sell stocks using actual live data but never actually spending any money.  It might seem like a weird hobby, but I have treated it more like a school of hard knocks (or becoming street-smart) for stock trading and learned several valuable lessons.

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   In any case, I plan on sharing a few of my simple rules of thumb with you in the near future.  However, considering the amount of time I have, I can only write about one method at a time.

   In today’s article, I will be discussing a way to reduce risk by combining three very important statistics that each stock has.  I don’t know if this is an official term, but I have started calling it the price percent of the 52 week range. 

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   The way you come up with this number is to take three variables (current stock price, 52 week minimum and 52 week maximum) and convert them into a uniform percentage so that we can compare all stocks against each other.  Let us say that I own a share of stock with the stock ticker TYR.  TYR has the current price of $15.  The 52 week minimum is $10.  The 52 week maximum is $110.  So the 52 week range is $100.  The current stock price is $15, so the price percent of the 52 week range is 5%.  Total formula is this…

price percent of the 52 week range =

(current stock price – 52 week minimum) / (52 week maximum – 52 week minimum) =

( $15 – $10 ) / ($110 – $10) =

$5 / $100 =

5%

   If you think that was a difficult formula, you should see some of the other formulas that are out there for researching stocks.  Hopefully I made it simple enough to help those of us who don’t have a degree in business.  In any case, there may be a statistic listed as such when you research your stock using the tools provided by the company you trade (or plan to trade) stocks with.