RISK MANAGEMENT STRATEGIES
Every Battle is won before it is fought”
Having learnt the core concepts of money and risk management you will need to incorporate those into a tangible strategy when trading. Traders can generate enormous profits but just as easily lose it all in a few bad trades.
It is clear what Sun Tzu is implying strategy and planning win wars not battles. A famous trading quote is “plan your trade and trade the plan” Below we are going to go through tools and techniques that can be used to help with your strategy and planning when trading.
Traders with a plan in most cases (Difficult with unexpected economic data, unknown shocks or disasters happen) will already know what price they are willing to pay for a financial product and where they will want to sell and take a profit or loss. They will measure returns against their plan or goals and if the returns are rewarding enough against the risk they will execute the trade. To help perform this task without the emotional baggage that can occur when in active trades there are helpful tools called stop loss (S/L) and take profit (T/P) which can be pre-determined prices prior to the physical trade and these orders can be placed as part of your position management once the trade is live. Even if traders don’t like using physical S/L and T/P order book entries they will always have price targets on the upside (profit) and downside (loss).