[Risk Management] How much do you risk on each trade?

Risk management is the most important aspect in trading. However, I witnessed many traders spending great amount of time searching for news and price charts for the BEST place to enter a trade. It is just a human nature to focus our energy on the most HOPEFUL point of the trading cycle. 

However, it doesn't matter how good your trading system is. One bad trade can K.O. your trading career if you don't have appropriate risk management.

Pro tip: Stop worrying only about how you should enter a trade. The key is to know at all times when you will exit.

Below are a few risk management strategy that you can consider using:

1.  Cut loss based on market volatility. (ATR)

This mean you determine your size of your cut loss based on Average True Range. For you used a difference size of cut loss that based on current market volatility.

Example:

You enter Long FKLI at 1717, current ATR is about 6.  So, you cut loss is 1717 - 6 = 1711. 

However, if you have bigger account size or your risk appetite is bigger you can use 2ATR( 6 x 2 = 12) or 1.5ATR (6 x 1.5 = 9) as your cut loss.

2. 2% of your account size.

Take your account, whatever size it is, and multiply by 2%. That's your risk you bet on every trades.

For example, a RM 100,000 account would risk 2% or RM2,000 per trade. It is always better to bet a small amount on every trade. In case you are wrong, you still can easily recover your losses in the next few trade. 

However, if you "bet" big and lost, you will need to win frequently just to cover your losses and trading costs. 

3. Reduce your position size during losing streaks

Losses are part of trading. All super successful traders take losses. Below are few examples: 

George Soros lost $2 billion in Russian Funds

Richard Dennis lost $ 48 million in 1992

Etc...

"Every trader will faces it. Only the winners know how to handle it." - Marty Schwartz

Losing streaks attack every traders. It will eat away your judgment and confidence. Many traders when they are in losing streaks, they increase their position size. They double up just to hope that they will win it all back on one trade. This strategy are self sabotage. You can lost all your trading capital and you can never back to trading business again.

What you can do is reduce your position size and back testing your trading system to regain your confidence back. That's all you can do. This strategy will greatly reduce the losses and reduce your emotional pressure as well.

I hope today's lesson can reveal to you some of the basic yet practical risk management techniques that you can use. In my intensive futures program course, I will teach more advance and complete risk management techniques you should forms in your trading strategies so that you can manage risks like a pro trader and achieve consistently good results.  

To open Futures Trading Account contact us @ 03-3002 5464 / whatapps ONLY 017 875 8817