Risk management is as important as Money management in trading. You need to calculate amount of money you are willing to risk on a trade.
Risk Management Strategies:
The following are the strategies employed in risk management.
You need to determine the size of trade. Trade size refers to the amount of money you want to put in a trade. This is also referred to as Margin Size; this must not be more than 15-20% of total funds for a single trade.
Always use stop loss to minimize losses when a trade goes against a traders prediction because, the market is highly volatile in nature. Use a stop loss of 5-8% below support area this is for professional traders as newbies can use the stop loss formula SL = EP – %SL. Where SL = Stop Loss, EP = Entry Point, %SL = percentage stop loss and %SL = 5-8%/100 x EP. You can read our article on stop loss to understand more about stop loss.
Risk To Reward Ratio
Your reward is always more than your stop loss point. You can use 1:2 reward ratio and this means if you use 5% stop loss then take profit should be at 10% increase. Successful traders use 1:2 or 1:3 reward ratio.
Risk and Money management is very necessary in trading. You need to be disciplined to make good money in trading.
Never go all in a single trade when you have not calculated your reward to risk ratio, because if market dumps, then you will be stuck in a trade and unable to buy at lower prices.
Use only 10% of your total funds to buy or sell a single trade. This gives you more flexibility in trading and you can take multiple trades at the same time.
No one can predict the market by 100% accuracy, employ the three strategies we just discussed above and don’t over trade. Learn how to manage your money and risk.
Read also onhttps://nairaland.com/mlcrypto