A good trader is one who knows how much loss he/she can bear and what should be the target. This is called risk to reward ratio.
New Delhi: Investing in a stock market is not only risky but also a serious business. One should consider all the pros and cons before entering the market as it is highly dynamic, and its trends change regularly. To become a successful trader, one has to understand the technicalities of the market. Risk management is one of the crucial aspects of stock market investing as it helps cut down losses.
If the risk can be managed well, traders can open themselves up to making good money in the market. However, the biggest mistake that traders have always committed is, that they never use risk management strategies.
Sooraj Singh Gurjar, Founder, MD of GTF (Get Together Finance), said that a proper risk management strategy helps in safeguarding the capital. Risk management strategies are a great way through which traders overcome sudden market crashes or volatile situations. This ensures that in some conditions when a trader is unable to make profits, he/she do not incur heavy losses.
“Remember, a good trader is not the one who participates in more number of trades. Instead, a good trader is the one who knows how to make money with fewer traders by protecting their capital,” he said.
Here are 5 techniques that can use for managing risks:
1. Stop Loss: Stop loss is an unsaid rule for traders. A successful trader never enters into a trade without putting an adequate stop loss. It is better to get out of a trade at first stop loss instead of unnecessary losses.
2. Risk Exposure: Traders should not put all their capital in one trade. Make sure that capital does not vanish in one trade. If one trade hits the stop loss, the other one might succeed and balance out the previous loss.
3. Risk to Reward Ratio: A good trader is one who knows how much loss he/she can bear and what should be the target. This is called risk to reward ratio.
4. Hedging: Hedging is an important risk management technique. It helps in minimising potential losses and protect profits by offsetting risks.
5. Target: Knowing when to exit a position is as important as knowing when to enter. Keeping a position open to accumulate profits can revers, resulting in erasing all gains.