Risk management - is the tool in the trader's workshop that should be kept in the most accessible and prominent place and be ready for use at all times.
It is a pity that many traders misplace this tool and forget about it. It is just sitting somewhere and collecting dust, especially during periods when the market is growing.
This is fueling the rumors that all traders are losing money, and implying that it is better to keep money under the pillow since the loss of funds is just a matter of time.
What is trading? Trading is all about mathematics.
It is important to realize there always will be pluses and minuses ...
Many do not recognize the impact of the "Minus" and therefore, when it happens, it can be very painful
The loss should be perceived as a common thing, and not as something terrible. For that, you must have risk management in place.
The RM (risk management) - must be an integral part of trading. But what is this exactly?
RM in my humble opinion and from my experience can be divided into a few categories:
- RM of the position - this is the simplest math, and in general, a good RM is 3:1, where 3 is a potential profit, and 1 is a potential loss. The stop-loss must be strictly enforced.
- RM of the trading strategy - many indicators play a key role, but roughly - this is the arithmetical average of the position RM
- RM of the trading system - Several trading strategies can be integrated into the trading system, and there are many more calculations, but no more complicated than in a single trading strategy RM
- RM of the AuM - same as above, the only difference is the number of the trading accounts more than one.
I will give you more details regarding each category in the next posts. Please subscribe, and you would never miss any of my future posts.
Sincerely, Your trader SAVINSKYI
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