RISK MANAGEMENT MONEY MANAGEMENT Risk Management Even if

RISK MANAGEMENT & MONEY MANAGEMENT

Risk Management • Even if a trader make 90% of the time right trade but his 10% of loosing trade can wipe out his entire capital. • You always need a plan to trade and always trade the plan you made. • Stop Loss & Target are the key points in a trade.

STOP LOSS • Stop loss is the price at which trader will sell the stock and take a loss on the trade. • It happens when the trade setup does not go according to the plan. • Sometime trader’s have the mentality that the price will come back at one point but the only think that comes back are losses so to get your losses covered you need a stop loss.

Target Price • Target price is the price at which a trader will sell a stock and take profit on the trade. • Sometimes trader can not decide when to exit the trade and stock moves to the period of consolidation in order to take profit always define your target price. • As I have already discussed always plan a trade and trade the plan.

How to set a Stop Loss? • There are lot of different ways to set up a stop loss. • Don’t set a meaningless stop loss that will get executed in single swing. • Moving average of different period can be used, donchian channel, VWAP, Super trend and different indicators which ever you are using.

• But if you are targeting for 1 rs movement your stop loss should be 30 -50 paise. • If you manage your risk your success rate will automatically increase. • Always have a trade plan, don’t go out there and just through your hard earned money for nothing. • But always place stop loss according to market volatility. • Setting stop loss and target price is necessary in order to know expected return.

MONEY MANAGEMENT • Money Management is a crucial element of trading the financial markets. It is a defensive concept that keeps you in funds so you can trade another day and underpins profitable performance. On a basic level it tells you if you have enough new money to trade additional positions.

• If a person loose 20% of his money on first trading day than he has to recover 25% in next trading to equal his position and than again new position to take a gain. In this way he will never achieve success. • If a person loose more than that for example 50% he need to get 100% in next trade which is nearly impossible and same for increasing percentage for example – 1000 rs decreased by 50% makes 500 now he has to trade with 500 to get back 1000 which is nearly imposible.

• Most of the people ignore this and make loses a person booking profits for more than 3 -5 years can even loose all his profits in single or multiple trades which is a huge loss. • They average down and average up which again give them losses due to lack of discipline. • Some traders take example of some famous trader like George Soros “Broke the Bank of England” by shorting the pound and walked away with a $1 -billion profit in a single day but instead of big win most traders make big losses.

• Jack Schwager’s book “Market Wizards”, day trader and trend follower Larry Hite offers this practical advice: “Never Risk More Than 1% Of Total Equity On Trade”. In above case even if trader makes mistake 10 times than also he will have 90% of his wealth. • But people even after knowing this learn only after wasting there money. • Always trade with the amount of money that will not impact your life even if you lose it but you need to keep a stop loss learned in risk management section even in this money.

• You can also use 5 -10% of your total wealth for trading and nearly 60% for investing and rest for Insurance. • But in your 5 -10% also you need to use its 1 -5% for single trade. This is called money management it can vary according to your need. • You can have your stop loss using the amount or by seeing the chart (Technical analysis), Price action or bollinger band. • At last I would say to become a proper trader you need to practice both types of management. Even a company needs a good management to run.