APPROACH YOUR RISK FIRSTStock market is not made for retail traders to win. It is made for them to lose and that is the only way professionals can make money.
They will drift retailers out in a shake out and force them to commit on the wrong side of the market. And trust me or not, this is the only way they can make money in the stock market.
There are a few reasons why the professionals are ahead of retail traders in this game..
Firstly Its not possible for retail trader to have an information edge that the professionals have. So let's just ignore this factor and stick to the charts.
The professionals trade on the 'right' side of the market. Means they trade in the direction of trend. When I say long term trend it is the higher time frame charts like weekly or higher. They would leave no stone unturned to keep retail traders out of the market, untill they are already sitting on huge profits. They would either stop retailers out or they will push the price too fast for late retail entries. Later professional exit on retail buy orders.
They might trade pullbacks but from a short term perspective. When most retail traders are convinced that the trend is down and shorting, professionals start accumulation. Then on a very fine morning the price opens gap up and game over.
Second reason is that professionals are experts in money management and risk management . They know how much they are risking on one trade and how much on the whole portfolio. This is where most retail traders fail. Retail trades are overwhelmed with emotions such as greed & fear and keep on losing more and more. They would not book small loss and keep on averaging down losing more and more.
Its important to follow a plan and identify the risk involved in the trade. As per my view no retail trader should take more than 1-3% of their capital as risk on one trade. Similarly, the profit target should be at least double the size of risk and this is for all type of traders.
Ex if your account size is 100000 then risk on one single trade should be between 1000 to 3000 rupees only. Target should be at least 2000 to 6000. You can always trail your stop loss for higher targets, depending on the market conditions.
Lastly the stop loss should never be kept too tight or the volatility will kill your trade. If stop loss is wide, you can reduce the number of stocks to manage risk or just pass-on the trade.
Hope this approach will help a few traders to be good money managers.
Regards
