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Risk Management

Trading Psychology - The Cycle of Market EmotionsThe majority of traders spend most of their time looking for good trades. Once they enter a trade, they lose control and either suffer stress from losses or are jubilant with pleasure. They ride along with these emotions and forget about the essential element of becoming a successful trader – keeping emotions under control. Winning traders know the importance of psychology in trading, whilst amateurs are not aware of it or ignore it. Develop your mental framework, your psychology by reading books, attending psychology webinars, remember, trading is 70% psychology and 30% skill. If you develop your mental framework appropriate for trading, you have won half of the battle.
NSE:NIFTYEducation
by PranamGhagare
58
NIFTY Analysis [Potential Zones] & Risk Management RulesNSE:NIFTY has dropped more than 10% since 03-June-19 and the sharp fall will definitely provide long term investors and institutions a buying opportunity. The chart shows the zones which the the market could potentially react from. Technical analysis or market timing is not the only key methods to successfully trade or invest, its a combination of pre-defined set of rules of risk management principles for losing trades and the ability to have the patience with your winning trades. RMS rules for Intraday traders: 1) Risk 1% of the account size on each trade, not more not less. 2) Find maximum 3 trading opportunities each day. Make sure you find those high probability trades and place 3 trades on each trading day. 3) Risk/Reward at 2:1. 4) ALWAYS PLACE A STOP LOSS. Placing a stop loss separates a novice from a professional. 5) Do not forget rule no.4
NSE:NIFTYEducation
by BlackPearlA
TOP 10 Trading Plan EssentialsA trading plan is your roadmap for what you are going to do in the markets. It's something that you have to create and is not optional. 1. How Many Trades will You Use to Evaluate Your Performance? - The answer to this question is very simple. Base your evaluation period on the number of trades placed and not by the amount of time passed. Time is irrelevant in the world of trading. 2. Identify Your Key Performance Metrics. - This can be your Risk to Reward Ratio for each trade. 3. What Time of Day Will You Trade? - For day traders, It is highly recommended you limit your trading activity. 4. Define Your Trading Edge. - Similar to the times of day you will trade; keep your trading edge down to one or two setups when starting. The more strategies you hope to master, the more difficult it will become to consistently make money in the market. 5. Identify Stocks to Trade. - Have specific stocks to trade for the day or the week ahead. It can be in terms of news, technical analysis, backtesting results etc. 6. Place Your Stop Loss. - Stop losses are not a negative thing, they are what keep you in trading business over the long run. 7. When to Exit - The exit strategy should be as simple as when the stock crosses below a moving average or a trendline, it depends on your trading style. 8. How Much Money Can I Use per Trade? - Without money management, you will not stand a chance of making it in the business of trading. For me, the amount of money I can use per trade is fixed. All the best trading plans have a limited risk of 1-2% per trade. 9. Trade Management - Trade management is a crucial element that needs to be addressed in your trading plan. You must know your initial risk for each trade as determined by your initial stop loss before you risk any money on the market. You must plan when you will add to your winning positions and how you plan to exit your winning trades. 10. Take Breaks. - Taking breaks is essential in trading, which is not discussed a lot anywhere. Taking a break for days or a week can help you to relax and gain more focus for days to come because trading is a mental game.
NSE:NIFTYEducation
by PranamGhagare
3
Trading - Make it easy - Part 7Its said, "Knowing risk tolerance level is the key to success in trading". Let me explain this with an example. Refer the above chart. Two traders A and B saw double top formation and decided to go short. Trader A used leverage above his risk tolerance level. Trader B took trade as per his money management. Both traders went short. After few minutes price start to retrace a little. Trader A got emotional. He have risked more and if the trade hit stop loss, his loss will be more. He got panicked. After some time price started to fall. Since trader A was panicked he booked small profit and exit the trade thinking the price will go up again. After few minutes price reached the target and trader A was sad. Trader B was casual as his risked amount was normal and exit his trade taking full profit. Both traders had same analysis and traded with same plan but did not get same profit. To avoid such mistake, one should remember that, trading is a process. One trade wont make you rich. To carry on the process of trading we should know our risk tolerance level and follow money management.
NSE:CNXMEDIAEducation
by vanathi
6
Survive before you thrive_TRADING PLAN THOUGHTS, KINDLY COMMENTRULES FOR ENTERING TRADE 1. No clarity, no trade. 2. Size the open. 3. Watch fair value. 4. Cover or liquidate trades in the pre- and Post-market; don’t open them. 5. Never use market orders. 6. Always use limit orders 7. Never chase stocks 8. Always look for confirmation among trading signals 9. Always know who the buyers and sellers are. 10. Survive before you thrive. 11. The market is unfair at times. 12. When in doubt, get out. RULES FOR EXITING TRADES 1. The market will lead the way. 2. Know why you are in a trade, and where you will exit. 3. Know how to route your order to reach your objectives. 4. Set mental stops. 5. Stocks tell their own story ahead of the news. 6. Don’t expect to squeeze all the juice from the orange. 7. Exit on reaction, not price. 8. Market is unfair 9. When in doubt, get out.
TVC:USOILEducation
by Financial_Lab
Newbie's Corner!Few of my friends here have started to think that I have forgotten Newbie's corner. I write, when I get some valid query. So here come a new question. Query : I have been trading for 4 yrs, I have learnt all technicals but still I am losing money. I dont know why. Answer : There are two possibilities. One is not knowing/learning technicals properly. People learn themselves from net, but dont know whether they read the correct content and understand it properly. They apply it with their own perception in a wrong way and lose money. 2nd reason is losing formed as a habit. If you ask a chain smoker, why you smoke, he will reply, I dont know/cant stop smoking. Anything you repeat form as a habit. Once it is wired with your brain, you cant remove it. So dear traders, if you are losing money, find the reason why and rectify it as soon as possible before you become addicted to losing money in trading.
NSE:BANKNIFTYEducation
by vanathi
26
Idea: Important Lessons to be learntGreetings of the day...!!! Sharing one case where we almost paid the penalty of not listening to chart... Some days earlier we recommended a short in idea around 78 for targets of 76 and 74 Things were going good and our 1st target was achieved within hours.... Booking partial profits when target 1 was achieved was good but there after... There were some elementary mistakes that we should have taken care of and should have avoided... Here were some mistakes that we made... sharing so that one can learn and avoid those mistakes and make himself/herself a better trader .... 1. Should have trailed SL to 78.30 instead of keeping it at 79.60 Looking at the charts will suggest the importance of 78.30 The stock came out of the falling channel.... The message was clear....Chart was telling us loud and clear.... EXIT EXIT EXIT There was a clear indication and ample time to exit from short position at cost itself for balance position... but we did not obey what charts were telling us... Even at 79.60 we should have exited but were adamant and expecting the stock to fall because of bias of our postion may be & We almost paid the penalty as the stock went up to 83 thereafter but luckily for us, again charts were at rescue and suggested not to panic but add short position again and we did so around 82.25 And today we were able to book profit at 79.70 and 78.80 respectively (our avg cost of open position was 80.125) Lesson to be learnt If we are looking at charts for our trade we should Listen to charts completely... and not let our will / expectation / ego to come in between, beacuse our expectation always has a desire attached to it and we become bias which is not good .... ------------------------------------------------------------------------------------------------------------------------------------------------------------------ So yes, Although the trade has given good profits overall ...we r not happy with the way we earned but I sign off thanking and respecting charts for helping and bailing us out this time... Regards & Take care...!!!
NSE:IDEAEducation
by indiamarketoutlook
2
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.
NSE:NIFTYEducation
by neneram
15
Weekly Educational Series - PART 2 ---------- Continued from Weekly Educational Series - PART 1 ; ---------- 3. Expectancy So, now we have got our risk reward ratio and winrate. We move on to calculate the expectancy of our trading strategy. The formula is, Expectancy = (Probability of Win * Average Win) – (Probability of Loss * Average Loss) So, in our scenario, where, Risk Reward Ratio = 2:1 Winrate = 60% we get, Probability of win = 60 % = 0.6 Average win = Reward = 3 Probability of loss = 40 % = 0.4 Average loss = Risk = 1 Putting these values in the formula, we get ; Expectancy = ( 0.6 * 3 ) - ( 0.4 * 1 ) = 1.8 - 0.4 = 1.4 Here, we get an expectancy of 1.4 , that is 1.4 is the average rupees you can expect to win per rupee at risk. {Example : you do 10 trades with 3:1 Risk Reward Ratio ; you win 60 % - earn 6 trades * 3 Rupees (18) you lose 40 % - lose 4 trades * 1 Rupee (4) you end up earning 14 Rupees even when you were right just 6 out of 10 times } This is a positive expectancy model, which we seek, to ensure that we will earn money in the long run. Professional traders aren't worried if their trade hits stop loss, because of this reason , that they know they will earn money ultimately. --------- NOTE : So, after learning all these concepts, what I want you to do is, from now on, pull out your charts and journal, see what works and what doesn't, set a specific strategy, determine the Risk Reward Ratio suitable to it, paper trade / real trade / past data - have a look and find out the winrate Calculate expectancy. What answers do you get ? Is it positive or negative ? How much can you expect to earn in the long run? -------------- Ok, so that was the first post, the essential basics of trading, and utmost requirement of a trading plan. I would like to hear from you all 3 things, 1. Whether you were able to understand and found it helpful ? 2. Whether you want more posts like these ? If yes, on what topics? 3. What does your expectancy come out to be ?
NSE:NIFTYEducation
by dravya
17
Weekly Educational Series - PART 1 For the benefit of other traders, I am starting a weekly educational series where i will be covering lots of topics related to trading which everyone should abide by. It will be in simple language and easy explanation so that everyone can understand. There will be further detailed explanation of nuances if required by the members. So, starting with the first post, BASICS OF TRADING | PART - 1 Technical analysis is a part of trading. It doesn't make money in itself, but how you actually use that analysis and then trade, is what makes money. Many traders believe the myth of timing, and hope that one day they will be perfect in analysis and start making money. But trading is not hope, it's math. We come here, to earn money, and how we do that consistently ? By using math. Let me explain you how. No matter what indicator you choose, what timeframe you trade in, you trade options, futures or commodities; basically, anything you do in trading, you should remember these 3 things which will help you be profitable in the long run. ---------- 1. Risk Reward Ratio : How much are you risking to get estimated reward ? Are you risking 5 Rupees to gain 15 Rupees ? Then your ratio would be 3:1 . ( Remember this is a R multiple and not rupees So, a 3:1 ratio can be any of these, risking 10 to get 30 risking 100 to get 300 risking 500 to get 1500 ) Easy ? Just calculate how much you want to risk for every reward you hope to get. Be it, 2:1 3:1 5:1 doesn't matter, according to your trading style, determine this. ---------- 2. Winrate : So, once you have decided, how are you going to trade, and fixed your risk reward ratio, then you take only those trades which fit the Risk Reward Ratio criteria. Then, do, at least 25-30 trades, on paper or for real, as suitable. Analyze your results. What percentage of the trades were winners and hit target ? and what percentage of the trades were losers and hit stoploss ? Assuming you followed the risk reward ratio criteria properly, let's say, you find out that, 18 out of 30 trades , you achieved your target ; and , 12 out of 30 trades, you hit your stop loss. This, gives us a 60% of winrate. (18/30) * 100 , that is, ( no. of winners/ total no. of trades) * 100 Once you have got the results of this, we move on to the third step. ---------- Continued on Part 2 . There's a limit on description length. I''ll link it below. Thanks.
NSE:NIFTYEducation
by dravya
4