Risk management may sound boring, but it’s vital to being profitable… Here’s what you should do

Julie Brownlee, Fsp Invest, 27 Feb. 2015

Tags: trading, risk management, trading strategy, money management, risk, risk management strategy,

If you don’t manage your risks when you trade, chances are you’re going to lose money.

You can’t trade based on a hunch. You must follow a strategy, have a target price and a stop loss.

So how should you manage your money when you trade?

Read on to find out…

Sound risk management comes down to protecting your capital

Protecting your trading capital is how you live to trade another day. This means you don’t have to get every trade spot on. And it means your losses don’t bring your trading journey to an abrupt end.

This is crucial, even if you have a top trading strategy to follow. If you don’t manage your risk and money, a few bad trades can take you out of the game.

Manage your risk with position sizing

One sure way to manage your risk is to only risk 2% of your trading capital on each trade. That means even if you have a bad run of ten losing trades, your trading pot would only be down 20%.

Being down is never a good thing. But if you risked 10% on each trade, ten losing trades would mean the end of the road.

You might find this hard to do depending on your trading capital and the type of instrument you use.

If you have a small trading pot to start with, spread trading may be a good option for you as you can start trading by risking just R1 a point.

Stick to a risk reward ratio

You also want to consider the reward side when you trade.

Aim for a 1:2 risk reward ratio. So when you put a trade on, you might risk R1,000 (where your stop loss is), but your profit target is R2,000.

This gives you a reward that is twice your risk. And you shouldn’t put a trade on unless your trading strategy indicates this is a possibility.

By sticking to a 2:1 risk to reward ratio, it means you only have to be right 34% of the time to break even.

So there you have it, how to use risk management to become a profitable trader.

*********** Advertisement ************

South Africa’s hottest stock-picking expert reveals the secret of his four-year streak of huge profits

Click here to find out more


Related QA

lenita.fourie777 asked:
I have lost PLENTY in Binary companies. I have lots of dept. I only have R 5 000 available now to try and make up some losses. If everything goes [read more]
Published at 23 Feb. 2018 in: Trading 1 Answer
joe9976 asked:
I have bought the South African Investor Crypto Wealth Package so that I can start investing in Bitcoin. Sam Volkering recommended opening an account [read more]
Published at 23 Feb. 2018 in: Trading E-mail 1 Answer
deongt asked:
Hi Timon. I am currently subscibed to Rhst and have a broker acount with Gt247. I,m thinking of subscribing to Pick pocket trader. Can I use the same [read more]
Published at 21 Feb. 2018 in: Trading 1 Answer
emmamaya020 asked:
Hi Timon, I am directing this question to you out of great concern from within. I recently subscribed to RST tips for making extra profit and on [read more]
Published at 21 Feb. 2018 in: Trading Trading tips 1 Answer
e7469 asked:
I already have an active old trading account with GT247, can I use this account? It was not 1 of the 2 brokers you recommended. Sue Neumann [read more]
Published at 20 Feb. 2018 in: Trading Broker firms 1 Answer

Related articles:




Youtube Twitter Facebook

Connect with us:    

  • Accelerated Investor
  • Accessories
  • Accountancy
  • Accountancy services