Managing Trading Risk

Published by Sharekhan Education | February 20, 2023

Generally, novice traders overlook the importance of managing their risk in their trades. As traders, the only thing we have control over is Risk. We cannot be 100% sure that our analysis will work in our favor, nor can we predict the direction of the markets. We cannot control whether we will lose or win. The only thing we can control is how much loss we suffer. And that is the reason why risk management plays a vital role for every trader and investor.

As the term ‘risk management’ comes around we only think about setting stop loss. And yes, many traders don’t do that either. However, risk management doesn’t only rely on stop loss but there are many factors that come under risk management. We won’t walk on the frozen lake after seeing the thin layer of the ice sign posted and several cracks appearing on the ice itself. Traders need to apply the same concept and logic here as well, depending on the market situation and nature of the trade.

Factors that fall under risk management:

• Education and mentoring

Without proper education, never jump into any segment of the market or else you will burn your hands. And after education, whatever practice you do, make sure you show your analysis to your mentors who are well experienced so that they can help you identify your mistakes and strengths.

• Monitor risk

After taking the trade, don’t forget about it until it gets closed. Monitor your trade after certain intervals and accordingly modify your stop loss too due to which your loss will be minimized until the target is achieved. And, if the price reverses before reaching your target, you will either make a small profit or lose money.

• Quantity:

Your position size should be determined by your loss’s appetite. Even if you are consistently profiting, don’t increase the quantity out of greed, because if it turns against you, your loss will be significant due to the large quantity.

• Analyze risk:

Before placing the order, analyze your risk in advance so that even if you are not there in front of the system, you won’t make big losses as stop loss will be assigned while placing the trade itself.

These factors would help traders manage their risk and establish a strong position to handle market volatility. Discipline has a big impact on every trader. If you see any danger sign or dicey situation in the trade, then be a conservative trader and take your entry accordingly.  Many people do plan their trade but not everyone is able to manage the risk in a manner that ensures their financial survival in the markets, especially when things go wrong.

Due to the fear of missing the opportunities in the market, many traders try to grab all the opportunities, even if the success margin is very low. As a trader or investor, you should take fewer trades, but the best one with a high probability of success, should be taken. This will force you to trade at the right times rather than following every small move in the market.

Depending on your trading style you should hold your trades in the market. Smaller time frames indicate that you should not hold your trade for an extended period. Even if the market is overly volatile, the time spent duration of holding the trades should be less. More volatility means more price swings which can end up in negative results.

Embark your Trading Journey:

The courses in Sharekhan Education teach you the proper risk management. After the completion of the course, student support executive will help you to find the right balance for your specific situation and trade plan. To know more about our courses, attend our Free Power Money Workshop

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Disclaimer:

Investments in the securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer and registered office details visit link – https://www.sharekhan.com/disclaimer/Sharekhan_Education.html