Risk management helps traders reduce their losses and prevents them from losing all their money. Even a trader who has made huge profits can lose it all in just one or two bad trades if he does not have a proper risk management strategy.
Although risk management is essential for long-term success in trading, many people do not pay enough attention to it. Therefore, I urge you to never underestimate the important aspect of risk management while trading. It is not very difficult to understand risk management tools and strategies, even people new to trading can understand them easily. The only problem is that human emotions like ego, greed and fear make it difficult for people to act on them while trading.
Risk management Strategies
Risk management strategies Pay attention to the points given below
Follow the trend
The most basic, simplest, and most important way to manage risk in trading is to always trade in the direction of the trend.
If you trade in the direction of the trend, the chances of you being proved wrong are very low and hence the risk of losing money automatically reduces.
If any security or thought becomes evident in the trend, then try to take a long position, i.e. buy at the support star and later sell at the resistance star.
Similarly, if there is a clear falling trend in a security or security, then you should try to take the desired position, i.e. sell at the resistance and then buy again at the support.
plan a trend
Successful traders are very disciplined and always trade according to their trading plan.
To be successful in trading, planning and implementing it is very important. In the context of trading, planning a trade means knowing when to enter the trade, how long to hold the position, and when to exit the trade. In the absence of a trading plan, one trades irresponsibly and does not follow a specific strategy for entry or exit, which can result in losing money.
Trade with the right risk-reward ratio –
If your risk-reward ratio is 1:2 and you have invested Rs 10. If you have kept a stop loss of Rs. 20 then you will get Rs. 20 in that trade. There is a possibility of a profit of Rs. There is a widespread belief that to make consistent profits in trading, the risk-reward ratio must be 1:2 or higher.
Control emotions
When a trader hesitates to enter or exit a trade, then fear is seen in him. On the other hand, in the greed of earning quick money, the trader trades more money than his capacity, then greed i.e. greed appears in him. You have the right plan and trading system, but if you do not follow that plan honestly due to fear or greed. If you do then you can never earn continuously.
position sizing
Position sizing is important to manage risk in trading. As the name suggests, it is an option to determine the position size. In other words, position sizing shows how much money the trader invests in a particular trade.
Follow the rule of stop loss –
The easiest and most effective option for risk management is to follow the rule of stop loss. The idea behind using stop loss is that if the market goes against your thinking, then at such a time you can limit the loss by closing your position. , Due to this you are saved from big losses, and your capital is saved from getting lost.
book profits
It is very important to regularly book profits from your positions while trading in securities. You should be clear about when to exit a position or book profit before entering any trading position.
It is often said that to be successful in trading one must learn to limit losses and maximize profits. But there is also a truth that when you book profit (i.e. exit the position) then only profit is said to be booked. Without this, profits are visible only on paper. Even if the position is solid and profits are visible, there is still a possibility of it collapsing at any time. Many times it happens that this profit turns into loss in no time.