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Before entering the markets, every trader needs learn a few concepts. Risk management, in my opinion, is at the top of that list, because what are we doing if we don’t protect our capital? Putting our future at risk?
Risk management is essential in any industry and is a critical component of success. Many traders assume that understanding risk management tactics is unnecessary until they trade with larger positions, however THIS IS FAR FROM THE TRUTH. If you want to maximize your profits, you must manage your risks and limit your losses.
Remember that you will lose trades and make poor decisions! Professional traders with a track record of success make poor decisions. Closing a trade with large winnings can cloud your judgment and cause you to overestimate your next trade. It’s not something to be ashamed of; it’s all part of the game. In this short article, I will outline a few distinct risk management tactics, as well as what to avoid and how to master them.
We will look into:
- Position sizing
- Stop Loss and Take Profit
- Risk/Reward ratio
Risk management strategies
“Do not risk more than you can afford to lose,” as the saying goes. It is usually not a good idea to invest more than 10% of your capital in a single trade. You can trade a larger position, but you must choose a tighter stop loss. Don’t worry, I’ll explain everything; let’s get started on position sizing now.
1. Position sizing
Position sizing refers to how large your position should be (How many coins a trader is willing to buy). Inexperienced traders are hoping for enormous profits and enter with half or all of their trading capital. You must keep in mind that this will expose you to significant financial danger. There is a very basic yet effective method for calculating your position size.
First and foremost, you must decide how much of your money you are willing to risk on a trade. This…