Tuesday, August 19, 2014

Risk Management: Guard of Your Account

It is famous and true in market that "Never use money for trading which you can`t afford to loose". It is almost like managing risks of your trading. It is necessary, otherwise there will be no future of our trading.

          Risk management is managing our risk of loss from a particular trade or trades. It allows a trader to limit losses while trading, that trader could suffer a loss at particular level, which is set by him or her. It is always good to find depth of water before entering in river.

         But how much risk should we take in trading? Well, it all depends on traders psychology, trading sector and method of trading. For example, trading in index is less risky because the movement of up and down in indexes is slower. While entering in equities is a little bit more risky then index, and entering in options trading is highly risky.

          I does not mean that high risk trading is a trap or we should avoid it. My motive is we should educates ourselves properly before taking a trade, that how much risk is in it. Few points which should be consider in risk management:-

(1) Your stop loss and trade stop loss must match with each other. For example if a pattern stop loss is 3% and you can`t afford to loose more than 2%, then either match both of them or do not take trade.

(2) Always check, at what point market will prove you wrong, how could be you wrong and how much it can effect your capital.

1 comment:

Manish Chandra said...

Very well said Sukhani Ji :) Love reading your blog and recently got my hands on your book "Trading the Market" great way to learn how pro analysts read/asses the market.