How Risk Management Will Save Your Trading Account

RISK MANAGEMENT:- Risk management helps cut down losses. It can also help protect traders’ accounts from losing all of its money. The risk occurs when traders suffer losses. If the risk can be managed, traders can open themselves up to making money in the market. The key to surviving the risks involved in trading is to minimize losses. Risk management in trading begins with developing a trading strategy that accounts for the win-loss percentage and the averages of the wins and losses. Moreover, avoiding catastrophic losses that can wipe you out completely is crucial. Without the implementation of risk management techniques, it would be incredibly easy for a trader to lose all their accumulated profits.

FIVE MOST EFFECTIVE WAYS TO SAVE YOU’RE TRADING ACCOUNT

1.CONSIDER YOUR PORTFOLIO AS A WHOLE TO ENSURE LONG-TERM SURVIVAL:- Long-term assets (also called fixed or capital assets) are those a business can expect to use, replace and/or convert to cash beyond the normal operating cycle of at least 12 months. Often they are used for years. This distinguishes them from current assets, which companies typically expend within 12 months. Depending on the type of security, a long-term asset can be held for as little as one year or for as long as 30 years or more. Generally speaking, long-term investing for individuals is often thought to be in the range of at least seven to 10 years of holding time, although there is no absolute rule.

2. USE STOP TO LIMIT YOUR LOOSES:- Most investors can benefit from implementing a stop-loss order. A stop-loss is designed to limit an investor’s loss on a security position that makes an unfavorable move. One key advantage of using a stop-loss order is you don’t need to monitor your holdings daily. Market conditions play a substantial role in deciding whether this Forex trading stop-loss strategy is acceptable. For instance, if the market had closed around the low on the second day in the example given above, the 50% strategy may not have worked.

3. TAKE ADVANTAGE OF TRAILING STOPS TO PROTECT YOUR PROFIT: – If you’re going long (placing a buy trade), then the trailing stop needs to be placed below the market price. If you’re going short (selling), then your trailing stop-loss will be placed above the market price Based on the recent trends, the average pullback is about 6%, with bigger ones near 8%. A better trailing stop loss would be 10% to 12%. This gives the trade room to move but also gets the trader out quickly if the price drops by more than 12%.

4. SIZE YOUR POSITINS CORRECTLY TO OPTIMIZE YOUR RISK LEVELS:- To determine the correct position size, you must know two things:

(1) Where you’re placing your stop (2) The percentage or dollar amount of your account that you are willing to risk on the trade. First up is where you’ll place your stop-loss order for the trade. Stops should not be set at random levels. It’s also the time to test out different trading styles and techniques and incorporate them into a strategy that is designed to protect your downside and help maximize your upside. Only once you are comfortable with your strategy—and feel your objectives are defined—you might consider increasing your position size.

5. UTILIZE COVERD CALLS TO MINIMIZE DOWNSIDE RISK: – While a covered calls is often considered a low-risk options strategy, that isn’t necessarily true. While the risk on the option is capped because the writer owns shares, those shares can still drop, causing a significant loss. Although, the premium income helps slightly offset that loss. Covered calls offer investors three potential benefits, income in neutral to bullish markets, a selling price above the current stock price in rising markets, and a small amount of downside protection.

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