Usually, on the priorities list of most traders, risk management ranks very low. Traders feel that only important factor to be a successful trader is just finding a better indicator, more accurate entry signals or worrying about stop hunting and unfair also-trading practices. But it is not. Along with these factors, you also need to focus on risk management techniques to do a profitable trading. Without proper knowledge about risk management techniques, you cannot book profit. You need to understand how to manage your risk, size your positions and create a positive outlook on your performance. If you want to become a profitable and professional trader then you must follow following tips;
Set orders and the reward: risk ratio beforehand
Think where you will like to place your stop loss and take profit order before itself when you spot an entry signal. Measure the risk: reward ratio, when you have identified reasonable price levels for your orders. Suppose if it does not match your requirements then you must skip the trade. Never try to widen your take profit order or tighten your stop loss to achieve a higher reward: risk ratio.
Always avoid break-even stops
It is very dangerous to move the stop loss to the point of the entry and thus create a “no risk” trade. Usually, it is unprofitable as well. You must always protect your position, as the break-even strategy often leads to a variety of problems. If you move your stop too soon, then a break-even stop will get out of potentially profitable trades.
Take spread seriously
You must always take spread seriously. Spreads are usually just a few pips for the most liquid instruments and thus you may consider them as they do not exist.
In stock trading, one of the best risk management techniques is to fix a stop loss and profit target.
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