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Risk Management in Trading

Lan Bell Lan Bell , 8/9/2018
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To avoid frustrations during your investor or individual trader stage, you should aspire to understand the control and management of your capital, cut-down losses effectively or avoid them completely. If you are just entering the trading space or even if you have been doing it for some time, you know all traders face losing streaks during the process, and if you do not take correct risk management, it is likely to end up crying over all the money lost. In trading, losses are inevitable, but controlling those losses is exactly what you should aspire to understand very well. Meanwhile, you can check Juno Markets account; they have cool features to help you avoid heavy losing streak.

There are different ways for capital management, here we tell you about one that has given us very good results at Juno Markets forex. We will take as an example an investment capital of 1,000 dollars and without counting the commissions.

Risk Management

At this point, it is best to determine how much funds you can lose in each operation. To do this, you must consider your funds and as a recommendation, do not risk more than 2% on that value. That is, if your capital is $ 1,000, the maximum amount of loss you could have would be $20 per transaction.

Then, decide your investment amount. The recommended thing in this point is to invest a maximum of 20% of your capital.

Continuing with the previous example, if your capital is $ 1,000, the maximum recommended amount to invest per operation would be $ 200 and a maximum loss of $ 20. With an investment per operation of $ 200, the percentage of loss you could have there would be 10% (Up to $ 20).

Using this strategy would allow you to have a streak of up to 50 losses in a row to lose your funds (50 * $ 20 = $ 1000). But if you want to expand this number, you should only take out accounts by modifying the maximum loss variable.

For example, instead of accepting 2% as maximum loss per operation, you can use a smaller percentage. Let's see the example with 1% ($ 10 if your capital is $ 1,000), your number of losing operations would support up to 100 operations (100 * $ 10) twice the previous year.

Controlling this is quite easy in the brokers we recommend since when you set your stop loss, you get the value in money to lose in that case, so you can calmly adjust it. In the case of low stops (5-20 dollars), the investment volume must also be low so that it does not close an operation quickly in a small setback.

Lost Relationship - Profit

Now you understand how to manage your losses; it's time to take a look at the management of our profits. Much has been said about maintaining a 1: 1 ratio, that is, if you are willing or plan to lose $ 10 your expected profit should be $ 10. However, trust me, it’s not a good idea.

Applying profit-loss ratio, if you win five operations of 10 made, your gross profit would be $ 50, but your losses would also be $ 50, leaving a net profit of $ 0, which would only be leaving the broker profit (for your commissions). Now, if you use a 2: 1 ratio or higher, you will be doing a very good job, and you would be profitable in trading.

With this example, if you win five trades of 10, your gross profit would be $ 100, and your loss would be $ 50, ending with a net profit of $ 50. Nothing bad! Put this to the test and always seek to minimize your losses.