How to manage your risks like a pro trader in London?

To be a successful trader in the capital markets, you will need to master your risk profile. 

Risk profile

Mastering your risk profile means that you can control how much money you can lose within a period – this is known as ‘managing risk’. 

Some people are born gamblers; others are happy taking low-risk investments with slow returns. 

Whatever your natural disposition towards taking risks might be, no one wants to make unsound investments. 

First of all, you should monitor your trading results to know whether your investment strategies work well in the market environment in which they operate. 

You can do it by calculating your risk-adjusted returns. 

Secondly, calculation makes it possible for traders to set their goals, manage their risks and make sure that they stick to these goals.

Managing risk means staying within predetermined limits while trading on the capital markets – this will minimise the chances of you losing more than you have allocated for trading. 

Traders may adopt different methods of managing their risks depending on what strategy they are using. 

Some investors are happy taking low-risk investments with slow returns, while others are born gamblers and aim for high risk but fast returns.

Whatever your natural disposition towards taking risks might be, no one wants to make unsound investments. 

Some investors are happy taking low-risk investments with slow returns, while others are born gamblers and aim for high risk but fast returns. 

Whatever your natural disposition towards taking risks might be, no one wants to make unsound investments.

Step 1

Be aware of whether you are a gambler or someone who takes a low-risk investment with a slow return type of person 

Step 2

Any successful trading strategy will have an entry method, which is how you buy into the market. 

For example, if this is an intra-day trade: you exit when prices hit your initial target or stop loss—finally, a money management strategy to prevent losses from destroying gains. 

If you are someone who loves taking risks to get quick returns, then you can risk 2% of your account balance on each trade – just enough room for five consecutive losing trades. 

You can also place trailing stops whenever your market position goes into profit (i.e., If you bought at 1001 and placed a stop loss at 998, once your market position goes above 1002). 

Then risk 1% of your account balance on each trade – just enough room for ten consecutive losing trades.

If you are someone who doesn’t like taking risks and would instead take low-risk investments with slow returns, you can risk 0.5% of your account balance on each trade -just enough room for 20 consecutive losing trades. 

You can also place trailing stops whenever your market position goes into profit (i.e., If you bought at 1001 and placed a stop loss at 998, once your market position goes above 1002). 

Then risk 0.25% of your account balance on each trade – just enough room for 40 consecutive losing trades. 

Step 3

Set realistic money management rules that fit in with the level of risk that you want to take.

Remember that you can always raise or lower your money management rules depending on how well they work for you. 

If things are not going too well for you, reduce the risk per trade to 0.5% – it is better to be safe than sorry.

Remember that the money management system is meant to safeguard and therefore cannot eliminate any possible loss. 

Thus, it would help if you used it alongside your trading strategy, which aims at minimising risks (entry methods), taking profits (exit methods) and keeping losses within predetermined limits (money management rules). 

It will help you ensure that your overall balance will remain positive no matter what happens.

To conclude

Managing risk means staying within predetermined limits while trading on the capital markets – this will minimise the chances of blowing up your account and help you maintain a positive balance.

Link to Saxo capital markets for more info.