Risk Management for Beginners Traders
Is it possible to conquer Everest in a business suit (or in home practice) without special equipment and training? Maybe, but the chances of staying alive are negligible. And to conquer the tops of the financial market without taking risks, without experience, only on one desire to earn? It is also unlikely, but somehow everyone believes this. Risk is noble, but not here and not with your deposit.
After all, your victory in the financial market is not a success in one click. We need to train, be prepared physically, psychologically, technically, to reduce risks to a minimum and achieve results.
You can conquer these financial peaks without loss for yourself following simple rules and taking risks on your way. It remains only to develop a plan and apply the rules of risk management.
So, let’s get started.
What is risk management?
Risk management is your SOS button, which turns on at a critical point in the market and throws you out of position. This is a strategy that is designed to reduce your losses in transactions. It’s a cold shower that soberes you when you tilt.
Risk management answers the question – how much can I lose in a transaction? This question as a flashing red light bulb should always be in your head. Earn on the stock exchange, you will, if you first learn to not lose.
How to manage risks?
“Iron ass” – do not sit out all the time for trade. The more trades you made in a day, the higher the risk of making a mistake. Do not give the market such a chance. Take yourself for the rule – 3 deals a day. If they are negative, then you definitely go out – your deposit and your psyche will be more secure. If they are positive, then you can exit or continue trading until the first losing deal. Tomorrow there will also be a day and there will be a market.
“Keep a diary” – write down all your transactions in the “transaction diary.” Maintaining statistics and a “transaction diary” allows you to look at which stocks you earn more and lose, the dynamics of your trade by days-weeks-months, which instrument you trade best, etc. In addition, by browsing deals on selected stocks, you will remember how they walk and more confidently predict their movement in the market.
“Once stop, two stops” – put stop-loss at the entrance and exit positions. Your stop should be 0.2% of the entry point. If the RTS is 130,000, then Stop Loss will be 130-260 points.
“Better than a bird in hand” – the size of the risk in each position should be in the ratio of 3: 1. Before entering the trade, count Stop Loss – if the price is 130, then Stop Loss we have 26 kopecks. Our risk size should be 3 to 1 – this is 78 kopecks. To enter the transaction, we must be at level 130 at least 129.16.
“Do not put eggs in one basket” – this rule is followed by investors in trading. They invest in the project from 5 to 30% of their deposits. If you are planning to become an investor, then consider this point.
Styles of risk management?
Some traders distinguish a conservative and aggressive style of risk management.
Conservative risk management assumes the maximum reduction of risks, stops are placed close to the entry point, premature exit from the transaction, if the market goes against the position.
Aggressive same risk management – on the contrary. Here put the stops away from the entry point, do not get out of position, even with the unfavorable movement of the market, try to take the maximum from the market.
But experienced traders believe that such styles are sucked from the finger and only confuse traders. Everything is much simpler – either there is risk management, or it is not. Either you consider your risks, follow your strategy, put stops or not.
Advice of a skilled financial climber
Fear not the mountains, but yourself! You will conquer the mountain, and yourself ?! You can not control the market, you can control only your risks and profits.
Now you are familiar with risk management, armed, prepared and ready for the market. Follow the simple rules of financial security and you will put your money flag at the peak of the trend!