Advanced Risk Management System
Why you need to learn this system for profitable trading?
Without proper knowledge of risk management, profitable trading is impossible.
Most of the traders are running for Perfect indicator, Accurate entry, Accurate exit, No loss trading setup & unfair Algo trading practices. Risk management is only a term for them but without proper knowledge of risk management, profitable trading is impossible.
Every trader must know about these facts -
Everything is probability-
- Risk profile (About Investment Amount)
- Risk appetite (Risk Taking Capacity)
- Per trade risk (Calculated Risk)
Risk to reward ratio-
Once you get a suitable entry as per your trading system, think where would place your stop loss & profit order. After getting reasonable price levels for your order, measure the risk-reward ratio. If favorable then go ahead otherwise skip the trade. Never forecast price movement always believes in the analysis.
Success key for risk to reward ratio -
Fix reward vs flexible reward –
Against the risk of you, trade rewards should be flexible. Do not go with fixed reward, try to understand this concept, if you work with fixed reward then you might be missing the bigger profit of your trade if price moves aggressively into your direction or might get lost if price takes early or accidental reversal before your target point.
Let’s discuss about above image –
- Here we have taken the example of 1:2 fixed risk to reward ratio entry price is 500, sl price is 495 & target price is 510. (Sl= 5 points, target 10 points)
- After execution of a trade, You are waiting for target price 510 ( 10 points double the risk ), as you have taken a risk of 5 points at 495.
- When everything is in your favor you get your target at 510 without any challenge.
- But Due to high volatility if the price takes early reversal (before your target price), a high probability to get lost. This is an actual challenge where 90% of traders don’t know what to do? And this blank state of mind generates only negative results.
- On the other hand, if price triggers your target at 510 where you book your profit & exit from the market after that price moves aggressively in the same direction and makes a good rally on the buying side then definitely you miss this golden opportunity. This is another challenge facing the majority of traders.
Stop loss management-
- Following market trend
- Being patient & avoiding quick decisions
- Planning the trade in advance
- Stock selection before opening the market
- Stop loss & Take profit
- Set stop-loss points
- Probability vs. certainty
- Half of the risk