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Thread: Managing risk

  1. #1
    AllaTeaSl Guest

    Default Managing risk

    I had traded stocks before, but i had limited capital so there wasn't much flexibility to diversify my portfolio so i ended up frequently trading using margin which I shouldn't have.
    Next time I start again, I'd ideally have 25k+, which many books suggest is a minimum, and I'd like to have a set plan before I begin, which is probably a few years from now(since im a uni student).

    Looking back to it, I think that biggest success factor is managing risk. I would like to utilize technical analysis as well for each trade( there are loads of books on technical analysis so im fine there), but most books I've read didn't go deep into importance of risk management except Elder's.

  2. #2
    Allstersaife Guest

    Default

    So Elder's advice is to risk only 2% of your capital per trade, and only 6% of capital at any time; and risk more if trades go in your favor.
    I think this is really safe strat, but can be slow.
    Do people here generally follow some kind of risk management strat here?

    What i think to do is buy and short stocks in same industry on the same day using technical analysis(* is this a good idea?) Set 15% stop for each stock; and keep raising stops if stock goes in my favor. Then buy more stocks using the same technique since the 2% limit is met.

  3. #3
    Allenned Guest

    Default

    So what kind of risk management strat do you have implemented in your trading system?

  4. #4
    AllenSak Guest

    Default

    I suggest you to take a look at Kelly criterion investing strategy. This risk management strategy computes the optimum % risk that will yield a maximum equity.

    Bear in mind that this method is risky and you should only be considering this approach if you have a fairly stable equity, big capital and you are comfortable with big losses. This is not recommended for beginners with inadequate trading capital.

    As using this method can produce draw downs which might not fit the investor risk personality.

  5. #5
    Altonbet Guest

    Default

    risk management, or money management, is BY FAR the most important thing in trading and investing. no amount of chart reading, news following, trading tips, etc. matter if you can't control your risk.

    just define your trade parameters before you enter a trade. write down exactly where you will close out the position if it goes against you. usually it's best to mark this with a technical event - such a lower high and lower low on a chart. but really could be anything, breaks below trendlines and key moving averages are good places as well. whatever helps you map out the trade parameters. but the important thing is is that you cut that loss without emotion and before it grows too large.

    i think we all know what it feels like to lose control of a trade. for me, it's when i miss a key event and i start "hoping" it'll move back in my favor. when hope enters my thoughts usually i've waited too long.

 

 

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