Is your trading account suffering from losses? Do you get emotional during the trade and feel like giving up on trading? Well, in today’s article we are going to discuss the solutions to all these problems and also risk management techniques used by traders to protect their accounts and get steady returns.
You must have heard that 90 to 95 percent of people who trade in the markets end up on the losing side. This may happen due to many reasons, but the primary reason overshadowing all the other ones is very poor or no risk management. Often, traders fail to understand the importance and power of risk management techniques.
Generally, traders want excellent trading systems but they fail to recognize that an excellent trading system with poor risk management is of no use because every trading system has its pros and cons. You will come to know the importance of risk management as you read below…
● “Plan the trade and trade the plan”
There are 3 main important aspects of trading-
These 3 aspects are interconnected in such a way that if one of them is missing, the other two eventually make no sense. For long-term success in trading, these are the three important qualities that are very essential.
Today we will discuss risk management which is the most important aspect among these three. Because if you are failing to manage your money then you will not have the right trading psychology and as we discussed earlier an excellent trading system with poor risk management technique is useless.
So, before starting to trade with real money you have to plan your trade by keeping these things in your mind.
● Do not take the trade without planning a stop loss
Taking the trade without setting the stop loss is like driving the break failed vehicle on the highway. You will never know when there will be an accident. As a trader capital preservation must be your first goal then you can think about growing up your trading account. Remember, “rules of engagement 101 for trading”: NEVER leave your bank account unprotected when you go out to fight the “battle” of trading. Now the question remains, what does that mean to you as a trader and the most important question is how to apply it?
It means that you should not trade with your real money unless you have your detailed trading plan. Your trading plan must include various things like a maximum loss that you can bear, what is your risk per trade? Which signals can be taken as confirmation before entering into the trade? Of course, there are many more things which should be considered but these are the most important things among all.
● Why is capital preservation important?
Usage of excessive leverage is considered a big risk in trading and it is the main reason behind the blowouts of trading accounts. Even the best traders can lose all their money due to excessive leverage.
Here the point we should understand is there are many good traders in the world some of them even get employed by major trading firms. However, not all of them can generate significant returns from trading because they fail in managing the risk of capital and capital preservation.
A “good trader” is not just someone who can analyze the charts and predict the next move of the market, but someone who can manage the risk of their capital with steady returns and can do this consistently with a trading edge. If you are lacking in your capital preservation skills then someday you will be ending up on the losing side. For long-term success in trading, you should practice capital preservation again and again.
The Process to be followed for making money as a trader-
● Key takeaways-
If you want to know more about Risk Management & Intraday Trading Strategies you can refer to our previous blog on