Today, We’re discussing How to manage risks in Trading? hereby, I am discussing the Top 5 rules which were used by the expert traders. Hopefully, this will help you in improving your skills.
What is risk in Trading?
Risk in trading or investing is the possibility of losing part or all of your initial investment. On the other side is the potential reward, the profit you can make. Generally, we say that the greater the risk, the greater the potential reward or return on investment. so, to cover all this risk we need a strategy which is called “Risk Management”
What do you mean by Risk Management?
The key to continued success as a trader is to keep your losses lower than your profits. Limiting or managing your maximum potential loss is usually easier than determining your maximum potential profit. At Nadex, you can set your maximum possible risk in dollars before making each trade. The amount you pay to enter a trade is entirely at your risk. You cannot lose more than your initial trade cost.
Top 5 Risk Management Rules to manage risks in Trading.
1, Only Trade with Risk Capital
Risk capital is the amount of money you are willing to lose and do not include your living capital in your trading account!
2, Risk to Reward Ratio
Only take trades that give you at least a 1:2 risk-to-reward ratio
3, 2% Risk ManagementThe 2% rule prohibits you from risking more than 2% of your account equity on each trade you enter.
4, 6% Risk Management
The 6% rule prohibits you from opening any new trades when your current exposure to open trades reaches 6% of your account equity.
5, 10% Risk Management
The 10% rule prohibits you from opening any new trades for the rest of the month when your losses and risks in open trades for the current month reach 10% of your account equity.
