Are you one of the traders who always lose huge chunks of money in the stock market? This happens because you do not properly manage your risk while trading in the stock market. By knowing simple day trading risk management tricks in stock markets you can easily manage your trade professionally.
Capital market consists of two types of market, primary and secondary market. A share is in the Primary market when it becomes available for the first time.
Once an IPO gets subscribed it got listed in the Secondary market. Furthermore, there are two ways you can start working in the equity market as an investor or trader.
An Investor invests for a long-term in the market whereas a trader looks for short-term profit-making opportunity.
Categories of Traders
Day Trader: A day trader is basically the one who closes their position on the same working day. They initiate their position in the highly volatile and momentum stocks.
Scalp Trader: Scalp traders are those who keep the positions for quite a smaller time and do entry and exit frequently.
Swing Trader: Swing traders are those who keep the position for two to six days. Even more than 6 days sometimes.
Positional Trader: Positional traders keep their position for a month or so.
The game is Risky!
Stock Market is the investment vehicle where fortunes can be made. You may be heard about stories of Ace global investor Warren Buffet coming back to India.
Furthermore, success stories like of Rakesh Jhunjhunwala, who is known as a big bull of Indian stock market. However, the stock market is not all that glitters and shines and there is another side of the story as well.
It is all about the losses, volatility and risky nature of the stock market. No investment is without risk and a high risk is always rewards you greatly.
A risk is an integral part of any investment avenue part even Bank FDs deemed to be one of the safest investment product.
However, it also has little risks as interest rate plays an important role in deciding the yield. Day trading risk management is a very important aspect while doing trading in the stock market.
So, if you are doing great while trading with in-depth research or analysis, and fails to apply any risk management, then your pocket will have a big hole soon.
It will take no time turning all your profitable trades into losses owing to the volatile nature of the market. Making good trades and consistently generating profit is nothing less than fighting a battle.
As planning and strategy are needed to win any battle and so you must adopt a proper trading strategy before jump into trading. Without a right strategy or plan of working in the stock market can make you land in no man’s land.
Day Trading Risk Management Tricks
As we all differ in our preferences in our day to day life choices so we differ on our risk-taking capacity also.
So, check out the 6 best day trading risk management strategies while trading in the stock markets.
Identify Your Own Risk Capacity
First and foremost day trading risk management in the stock market is to identify own risk-taking capacity.
It simply means which level of losses you are comfortable in taking the exposure and not lose your patience and peace of mind if current position reverses.
Don’t Be Greedy
Identify your profit expectation as well and don’t be greedy in the stock market. If you are momentum trader then you should be cautious and vigilant about the momentum.
If the market is playing subdued without volatility then one should wait for the right time to make the trade. The beauty of the market is that it continuously gives you chances to analyze evaluate and trade.
So never hasten your trade. Always estimate how much you want to earn in a day. If you achieved it then you can shut down your system and take a sip your favorite cup of coffee.
Avoid Over Trading
Avoid over trading and never multiply your losses. If you incur losses in one or more of your trades then do not compound it by doing over trading in it.
Taking mindless emotional positions to recover that loss will lead you to more losses.
Maintain Balanced Risk-Reward Ratio
By considering your risk taking capacity and return expectation maintain a balanced Risk-Reward ratio. Generally 1:2 risk reward is the ideal for a day trader.
Its say never takes risk more than 1% in intraday and profit should always be double as compare to the risk.
However, it is not a rule which you should follow. It is a matter of individual expertise, management, and experience.
Choose Right Advisor
You can choose a right advisor for day trading in the stock market. Furthermore, if you are not a professional trader, then you can also consult an experienced researched analyst. You can look for a proven track record of consistent performance and advisory services.
You may research about a lot before approaching a healthcare professional to analyze who is the best out of them to tackle your health issue.
Similarly, the best stock adviser must be selected very carefully as they are the one who will guide you where to invest your money.
Select Right Stock Broker
Sometimes everything goes right in terms of stock selection, risk analysis, best stock advisor still when we balance out our trade we do not get anything.
In fact, we ended paying in the form of commission, taxes or brokerage. Brokerage is the cost which a broker levied on the services and it varies from broker to broker.
So It is wise to carefully check and compare your brokerage and further you can negotiate and can have the best cost structure also.
I have mentioned only 6 best ways to manage your risk in intraday trading. However, if you know any other way to manage the risk, then please comments below.
Published on: Nov 15, 2017