Risk management is a major parameter for trading successfully. Traders who fail to implement appropriate risk and money management they will face financial barriers at some point.
The outcome could be either losing an account balance extremely fast or re-depositing over and over again.
The majority of traders fail to apply risk management and focus only on their strategy. Paying attention only to your entries and exits is not the way.
The introduction of the advanced online platforms enables the traders to apply risk and management tactics to safeguard their account balance.
Risk management is essential
The two commonly used criteria, before and when placing an order, are the stop loss and the take profit.
A trader should define beforehand the level where he or she will exit an order should it goes wrong, and the level where he or she will exit with a profit.
The trader who fails to understand the concept of capital control he or she is at risk. The level of investment should be proportionate to one’s trading account balance.
Therefore, if the account balance increases, the level of investment should increase accordingly, and vice versa.
There are more advanced methods also, such as the limit and the stop orders. The limit or stop orders involve pre-determined trades.
Below is a breakdown on how the limit and the stop orders operate:
- Buy limit: The buy order is triggered when the price drops to a pre-defined zone
- Sell limit: The sell order is triggered when the price rises to a pre-defined level
- Buy stop: The buy order is triggered when the price rises to a pre-defined area
- Sell stop: The sell order is triggered when the price drops to a pre-defined zone
Moreover, traders should be able to apply risk and money management with professionalism and care.