In Uncategorized

10 RULES OF RISK MANAGEMENT FOR EQUITIES TRADERS

1. Be Logical not Emotional

  • Decide your rules to enter and exit trades Spock Uses Logic When Trading Forex
  • Decide your rules to exit losing trades
  • Write your rules down
  • Always adhere to your rules
  • Before you place a trade:
  • Know your profit target
  • Know your loss limit
  • Understand your strengths and weaknesses
  • Build on your strengths, control your weaknesses

2. Trade, don’t Gamble

  • Trading DiceDon’t sell after a period of selling
  • Don’t buy after a period of buying
  • Don’t take overnight trades (you can’t control what happens)
  • Don’t trade at major news announcement times. Volatility at major news times can blow your trading account
  • Don’t ever trade without a Stop Loss

3. Use a small ‘lot’ size until you’re comfortable with your results

  • Build a buffer bank
  • Stage lot size up slowly
  • Stage lot size down when your strategy doesn’t respond

4. Don’t Add to Losers

  • You can wipe out your account waiting for the market to come back to you

5. When in doubt Get Out!

  • EXIT YOUR TRADESImmediately
  • A flat is a good trade, nothing was lost

6. Have a Daily Loss Limit

  • Ultra conservative – 0.5% to 1% of risk capital
  • Conservative – 1% – 2% of risk capital
  • Experienced Conservative – 3%

7. Don’t increase your lot size to recoup losses

  • The table below shows why you should not increase your lot size (and therefore your risk) to recoup losses.
  • A recommended amount to risk at one time (not per trade but at any one time) is no more than 3% of the account balance.

Risk Aversion Chart

So in percentage terms, you can see that the higher the percentage of your trading capital you risk, the higher the percentage return you need to get back to where you started!

8. Don’t Overtrade

  • Set a daily goal Stop Trading
  • Stop trading when you reach your goal
  • Keep your lot size the same throughout a trading day

9. Be Disciplined

  • Do your homework (your research)
  • Plan your trade
  • Trade the plan
  • Focus on the trade, don’t get distracted
  • Keep a trade journal
  • Analyse your journal to identify learning points

10. Be Careful of your Computer System

  • Computer Explodes From Trading
  • Don’t trade if you notice problems with your system or data flow is slow
  • Have a check list and if something is wrong don’t trade