Many people ignore the importance of risk management in their positions and trade. As a trader or investor, this is the only thing we can check. We can not control the directions of markets. We can not control whether we are winning or losing any position. The only thing in our control is the loss we will suffer.
For most traders, risk management simply stops the stoppage. Many investors have not yet done this to control the risks. However, there are far more risk management in the markets. Would not it lead to bridge if you noticed that most of the supports would have collapsed? Did she go to the frozen lake after seeing the "Thin Ice" sign and showing more cracks on the ice? Of course not, not because he observed the environment and realized that the process was too risky.
We need the same discipline as we are involved in financial markets. Before analyzing the risks to trade or investment, we need to look at the current market environment, the security environment and the trend. Are we in a dangerous location that would prevent us from taking a job? Suppose the markets were bearish, your security has just released disappointing revenue and is close to supply on the trading timeline. Would you buy the shares just because the prices rose slightly? Probably not. Despite a short-term bullish move, the overweight bearish marketplace says the environment is risky and the reward is not big enough to support a long position.
Many people are able to trade, but they are not all capable of risk analysis and risk management in a way that provides financial survival in markets when things go bad. And believe me from time to time.
I would like to discuss three major risk management techniques here:
Frequency and number of open positions in trading and investment. The problem with traders and investors is to try every opportunity to visit and open positions, with only marginal chances of success.
Successful traders / investors have a stronger role to play in opening up their positions and only employing trades that meet the specific criteria outlined in their plan have a high probability of profit. As a new trader / investor, the number of committed transactions should be limited. This will force you to look for opportunities to trade and not jump into the small steps on the market. Keep in mind that if you miss the opportunity, then maybe other people will come close to you.
The second method is the amount of time or the time spent in the position. The longer the situation is spent, the greater the chance of unfavorable price movements. Therefore, investors take a much greater risk on the market than dealers. When focusing on smaller time frame charts, we have less profit potential, but we have a much lower risk. Smaller timeframe trading reduces commercial risks
This does not mean that you should not profit from longer time frames. You can compensate for the increased duration of the risk from the other two sizes and / or frequencies. Long-term traders and investors are still able to handle the risk well.
The time period must also be rejected if the general volatility of the markets increases. Increasing volatility results in more drastic price fluctuations. As a new trader who is not traded with these swings, they can reduce their exposure by shorter trade.
Volume is the most important aspect of the risk management plan. the most important aspect of the risk management plan. The amount of dealer / investor is the stock size that we take as a position. Obviously, most people want to make the most profit, but with a larger stock size, we increase the risks. The volume should be practical, simulated, and not risky. After successful practice, you can increase your risk with a minimum stake. If you do well, gradually increase the stock size.
The keyword in the last sentence is incrementally increasing. Many traders feel that they have to go from 100 to 1,000 or 1,000 to 10,000. This increases the risk ten times! It is much better to double the stock size or the risk at each step and only do so if you have a positive gain / loss ratio. If you risk more money in one position, there is a psychological effect you will notice. The increase in profit and loss can exponentially increase the psyche of the new trader. This can lead to panic coming out of the position or keeping the losers freezing with fear.
If you do not trade or invest, you should immediately examine your risk management. The first thing is to reduce the volume (share size). Secondly, be more selective in your positions and reduce the frequency. Finally, you can reduce trading volatility to counteract volatility
Everyone has a different balance of these risk management tools that should be used.
Source by sbobet