Risk Management
All of life is the management of risk — not its elimination.
WALTER WRISTON
21
MANAGE YOUR POSITION AND PORTFOLIO SIZE
Never take an arbitrary position size. Every trade that you take should be measured. You should be able to determine how each position would impact your portfolio before executing a trade.
22
SET DAILY AND WEEKLY LOSS LIMITS
Everyone hits a rough patch in their trading lives.
Sometimes it’s us. Sometimes it’s the markets. The key is not to let any string of losses ruin you or your account. Daily and weekly loss limits prevent any streak from ending a trading career, whether driven by the market, a broken strategy, or our emotions.
If caught in the downward spiral, STOP, and re-evaluate your strategy , go over every step of previous trades and find the reasons that made your previous trades a bad ones.
Sometimes it is enough just to sleep over and calm down. Sometimes you’ll come to the conclusion that you are doing something wrong.
But whatever the reasons behind the string of losses are, just by stopping at certain loss limit will bring you back in control.
23
NEVER LEAVE TRADES UNATTENDED
This might sound obvious, and no, we’re not talking about using the restroom. Our world is full of distractions. It’s easy to take a phone call and lose focus on what’s going on.
Heck, some traders completely forget to close out trades before leaving the office. Don’t let that be you. If you don’t plan to exit a trade manually, always have a stop loss and target order in place just in case.
24
YOUR FIRST LOSS IS YOUR BEST LOSS
This adage has been used by countless traders and never loses its value. In layman’s terms — take small losses before they become big ones.
Traders stay in positions for two reasons: they don’t want to be wrong, or they don’t want to lose money.
Once your trade has gone outside the parameters of your strategy, you’ve turned it into a gamble.
25
DON’T TRADE WHAT YOU CAN’T AFFORD TO LOSE
We’ve saved the most important for last…
We all want to make money trading. That’s why we start. But the last thing you want to do is trade money that you can’t afford to lose.
What does that mean? Here are three simple rules:
- Don’t borrow money to trade that puts you in debt (this is different from leverage).
- Don’t take money you’ve set aside for another savings purpose.
- Don’t trade money that you need to pay your bills.
To help you with managing Risk while trading , we have developed an Algo Trading Charting System , that gives you both :
- Trading Levels
- Automatic Risk Management
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