Risk Management

Risk Management ( part - 1)

RISK MANAGEMENT IS KEY TO SUCCESSFUL TRADING

KEEP IN YOUR MIND –  Behind every successful trader, there is a “Strict Risk Management System”.so if you do not know how to manage the risk that means you can not make a consistent profit.

Benefit Of Managing Risk – 
  1. You’ll never blow up your trading account.
  2. Your losses feel like an ant bite.
  3. You can win maximum of trades.
  4. Calculated risk can secure your trading account & you don’t lose your entire trading capital.
  5. You can find low risk high reward opportunity.
  6. You can identify high risk trades & easily avoid it.
  7. Per trade risk concept make you balanced trader.

Risk Management ( part - 2A )

THE GOAL IS TO WIN A LOT & LOSE A LITTLE

SUCCESS GUARANTEE –  you’ll never blow up your trading account & this time you can become a proficient & profitable trader if you apply Risk Management & position sizing strategies.

Let’s start now- – Secret of profitable trading is proper risk management, here we divide profitable trading into 2 important steps-

  1. Protection – ( This is 1st mandatory step for Protecting of hard earned capital / investment amount )
  2. Profit Making – ( This is 2nd step after interpreting first step )

Question –  How to protect existing capital & become a profitable trader?

Answer –  By following Risk Management & Positional Sizing.

We can understand risk management position sizing with this example –

Example –

There are 2 traders, Trader A ( aggressive trading style ) & Trader B ( Logical / Calculated risk-taker )
Both have Rs 1,00000/- for investment –

Traders A risks 25% of his account on each trade
Trader B risks 3% of his account on each trade

With a 50% winning rate & 1:2 Risk To Reward ratio

After completing 10 trades results are like this – ( follow below table )

As per above result, We have determined secret of profitable trading.always remember trading is a game of probability it’s not certainty so we need to set probability with less frequency & ultra small stop losses. never use your big part of investment amount in single trade.

In our next topic #Risk Management ( Part -2B), we will learn positional sizing & it’s implementation.

Stay with us, we will explain each & every element of #Risk Management in stock trading & explaining exactly what they are and why they are important.

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Risk Management ( part - 2B )

THE GOAL IS TO WIN A LOT & LOSE A LITTLE

Positional sizing & its implementation

Before I get into it, keep an open mind about the objective of this topic –

Objective –
  1. The main objective is to protect hard earned capital and prevent from big loss which one can never recover.
  2. Maximize profits without risking defined capital
  3. Position sizing is to help you meet your trading objectives
  4. Position sizing strategies to help you manage the risk of a losing streak

Finest & Simplest Formula is here –

As we know that trading is a game of probability, So we have to respect this default rule of the market. We can not put our whole hard-earned money into a single position.

here we need to learn positional sizing & its implementation for every single trade.

Fixed Percentage Position Sizing –

Position Sizing = Per Trade Risk / Stop Loss Points

Eg: If per trade risk = 3000 & Stop Loss Points = 4 then

Position Sizing = 3000 / 4 = 750

I hope you understand this properly.

Risk Management ( part - 3 )

RIGHT TO MISTAKE

Right to mistake is most important aspect of trading, it allows you to stay in market in every condition.

Fact – As the majority of new traders unable to stay even 1 month with the same capital due to lack of knowledge about proper risk management system & its application. they trap with random profits. believe me, it’s poison to your hard-earned investment.

What is Right To Mistake ?
Right To Mistake accepts your mistake without reducing your hard earned investment amount.

In our initial trading process, We need to earn small – small profits ( as per our risk appetite ) & try to collect 5x profit as our calculated risk. once You get 5x profit than your risk that means you have 5 Right To Mistake & with use of a proper probability system We ca stay in the market forever. This is the actual secret key to success.

Eg:

Ii You have 1,00000/- Capital in your DMAT account then need to find our per trade risk.

Per trade risk ( 3% of total Investment Amount ) = 3000/-

With our strong price action trading system, you need to collect minimum 5x profit than your per trade risk amount.

3000 x 5 = 15,000/- ( 5x Right To Mistake )

Now you are stable in this market.

First, you need to identify ‘swing levels’ where old resistance becomes new support or the other way around.

When a swing level is tested, traders can look for buy or sell signals generated by their trading system.

When a swing level is tested, traders can look for buy or sell signals generated by their trading system.

In our case we look for price action reversal patterns to enter us into a trade.

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