Risk Management Strategies for Traders

## Why Risk Management Matters The difference between successful and unsuccessful traders often isn't their win rate—it's how they manage risk. ## Position Sizing ### The 1-2% Rule Never risk more than 1-2% of your trading capital on a single trade. **Example:** - Account size: ₹5,00,000 - Max risk per trade: ₹5,000-10,000 - If stop loss is ₹50 away, max position: 100-200 shares ### Calculating Position Size Position Size = (Account Risk) / (Trade Risk per Share) ## Stop Loss Placement ### Types of Stop Losses 1. **Technical Stop**: Based on support/resistance levels 2. **Volatility Stop**: Based on ATR (Average True Range) 3. **Time Stop**: Exit if trade doesn't work within expected time ### Common Mistakes - Placing stops at obvious levels (round numbers) - Moving stops further away when losing - Not having a stop at all ## Risk-Reward Ratio ### Minimum 1:2 RRR - Risk: ₹1,000 - Potential Reward: ₹2,000+ This means you can be wrong 50% of the time and still be profitable. ## Diversification ### Don't Over-Concentrate - Max 5-10% of capital in single stock - Spread across sectors - Consider correlation between positions ## Practical Checklist Before every trade, ask: 1. What is my maximum loss if wrong? 2. Where is my stop loss? 3. What is my target? 4. Is the risk-reward favorable? 5. How does this affect my overall portfolio risk? --- *Remember: Protect your capital first, profits will follow.*