Risk management in trading
Introduction
Good day Tron fan club how are we all doing this week I hope we are properly rested and excited for the week to come.
I am very glad to be amongst your midst today to share with you an exciting post which I feel would impact positively in the life's all those who trade crypto currencies.
Risk management in trading
The term risk management is a combination of two relating words risk and management, this two words though they are closely related mean two different things
Risk
This is the amount in which we are willing to forge for the achievement of something greater, simply put the amount of asset in which we are comfortable losing to get something else of greater value in return.
We may not necessarily lose an asset when we risk it but there is the danger of losing it.
Management
This is the act of managing a situation so as to prevent the worst possible outcome, often times in businesses we are presented with impossible situations, but by proper management we are able to better control situations which would have proven to be disastrous otherwise.
Risky management
This involve a the ability of a trader to reduce the risk in which he is willing to accept on each trade he makes and by reducing such risk he must do so in such a way that it doesn't affect the ability of a trader to make good financial and calculated decisions.
Hence risk management involves the limiting of risk involved in trading up to the barest minimum which would not affect the process of trading.
Without risk one cannot make money especially on the crypto market one has to be especially careful when trading as the Market is very volatile and irrational and has the ability to take your capital very fast.
Methods of risk management
They are various strategies in which we can use to minimise vourbrisk while trading, this various strategies exist because not all traders are the same and we all have our different style of trading so what might work for trader a might not work for trader b, but in essence all this risk management method help minimise our risk on each trade we are taking.
10% rule.
This states that whenever ever your trading we shouldnt lose more than 10% of our initial capital, this means that if we entered a trade with $1000 we are not supposed to lose more than $100 on such trade.
By doing this it would help us cut our loses very early and prevent loses that could nearly clean our account.
By following this rule to the letter and only losing 10% of our capital it would ensure that we dont lose all our money.
For example
| Initial | amount |
|---|---|
| First trade capital. | 1000 |
| You lose | 100 |
| Second trade | 900 |
| You lose | 90 |
| Third trade | 810 |
| You lose | 81 |
By doing this continuously bwebare able to gradually reduce our loses so as to preserve capital.
Risk to reward ratio
This form of risk management entails that for every trade we take the possibility of making profit must always be higher than the possible lose which would be gotten form such trade.
In simple terms if we were to enter a trade which would give us 50 profit and 500 loss if it doesn't go our way such trades should be avoided as they aren't profitable.
If the reverse were to be the case where we stand a chance of profiting 500 and losing 50 if we are wrong such trades are high probability trades and should be taken.
If we take 5 of this trades and lose 4 and win one the win from that one would still ensure we are profitable.
Locking our profits
This form of risk management entails that after each trade profit or loss the amount of money used in such trade should be locked until the following day hands capital is being preserved.
Take for example out of my initial capital of $1000 I trade using $500 from this and I got a profit of $200 the whole money which is 500 initial capital + 200 would be locked and what I'll be left to trade with his 500 for the rest of the day.
By doing this we are greatly reducing the amount of money in which we can lose in a particular day.
Conclusion
The more we play the more we understand that the process of trading is simply the traders ability to manage his or her ex is only trooper barracks management would we be able to go our capital to the highest point.
With good week's management were able to cut our losses from the early stage and let our winners run.
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Alright engr
You have made an important post.
Indeed risk management is one major thing that keeps a trader profitable Ns you have done well in explaining it.
Thank you.
Thank you student for acknowledging my efforts to produce quality content
Yes, I do believe risk management is a key instrument in ensuring reduced losses. Personally I follow the 10% rule and the locking of profits and it saved me alot especially during the crypto dip. I also think technical and fundamental analysis are needed before trading and they would also go a long way to minimize risks so wouldn't it be nice to add it?
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Crypto is volatile and you need to manage the risks or else you can lose all your money in seconds and you have explained how to go about risk management. Thank you for sharing.