Risk
Trading - Risk ManagementHi ,
All the post are on trading /technical analysis. So thought of putting something on risk management .
What is Risk Management ? Now don't look blank, if your in markets you have to know about it.
Does every trade has risk and Is quantum of profit assured ? Yes every trade comes with risk and no assurance of profit.
How much risk can you take ?
Lets begin by example , Let say you have capital of 1 lakh.
Than the Basic risk you can take is 7 % of capital , why 7 ? I just divided 1 lakh with 13 (fib number) , we get 7.69 (approx 8) which is also fib number. So lets round it to lower side 7 so 7 % of capital .
So your risk profile is 7 thousand on capital of 1 lakh, if you decide to take 2 trade it becomes 3.5 thousand per trade ,
3 trades is 2300 per trade.
What risk reward ratio trade you can take ?
Risk : Reward has be 1:2 minimum , 1:3 and above is better , 1:1 risk reward can ruin you out of market
(Refer : Google it : Nauzer Balsara :Risk to ruin)
What position size you can take ?
So once you know your risk is 7 thousand on capital of one lakh and let say you decide to enter a trade with stop loss of 10 Rs than the position size you can take is 7000/10 = 700 shares ,i.e you cannot enter into trade where lot size is 5000.
How muck risk can you take per day , per month ?
Your risk per day and per month remains same , if you suffer loss of 7 thousand on capital of 1 lakh in between the month than you have to wait for next month for taking a fresh trade (Remember markets are forever but your capital is limited)
Rather than taking 7% risk you can choose it on lower side also like 6,5,4 as per your choice,
Above points should act like a reference.
