How do you manage your risks?
Question that baffles 9 out of 10 traders. Analysis is not so important, strategy and tactics are not so important, and what happens in the market is also not so important. But the most important thing is competent risk management.
In trading, risk management comes down to simple rules:
- To think over a plan for fixing losses in the case of an unfavorable outcome, placing stop orders (market stop-losses, stop-limit orders to reduce the position).
- Control and understand the total risk of open positions.
- The potential risk must be many times less than the potential profit. This is called the risk/profit ratio.
A trader is not an investor; he can’t wait years for an asset to rise. He determines the moment when it is more likely to move up and buys the asset in order to sell it faster and at a higher price.
What to do if an asset falls after purchase? Some will say to wait, it will grow. But a professional trader knows that it is better to fix the loss and form another trading idea, where you can potentially earn more, and the probability of upward movement is higher. After all, an asset can fall for a very long time and very hard.
Some traders bought BTC at 19 000 USD in December 2017. During 2018, BTC fell to 3 500 USD. What do you think: if they had been told in 2017 that BTC would be 3 500 USD a year from now, what would they have done? Most likely, even the riskiest would have sold and fixed a small loss.
Resonance.vission
You won’t become a millionaire with one transaction, but without a stop loss in one transaction, you can lose everything. These are the statistics of millions of traders. Sticking to the rules is hard, fixing a loss is painful.
It’s a skill that needs to be practiced. Get to work!
I strongly agree to go though all lessons and especially take the test, to see if you really understand something about the trading or you are just pretending to
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