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Riskmangement

JS-Masterclass: Risk Management #1JS-Masterclass: Risk Management #1 Risk Management in Trading – What does it mean ??? Risk management in trading is following a set of principles for minimizing losses. It’s an essential part of a trading plan that helps to minimize the losses and capture sustainable profits. One of the biggest mistakes traders make is focusing on maximizing profits while overlooking the potential for loss. Unfortunately, that’s the best way for losses to get out of control. Traders need to leave this notion of greed behind them and always think risk first. Once a trader has mastered this principle, the successes will follow. Implementing risk management techniques into your trading strategy can mitigate your risk when the market moves in the opposite direction. Fundamental risk management principles for minimizing losses Whether you are new in trading or an experienced trader, you always need to consider the following principles. They need to be a central part of your trading plan and strategy. The 1% rule The 1% rule in trading is a crucial principle of position sizing. It refers to risking no more than 1% (absolute max. for pro-traders is 2%) of your capital on a single trade. For instance, if you have $50,000 in your account, applying the 1% rule would mean you won’t risk more than $500 on a single trade. Some traders use the 2% rule to increase potential profits, but that amplifies potential losses, too. Sticking to the 1% rule will limit your risk on any given trade and help you preserve your equity. New traders should start with even lower risk levels. Stop-Losses Stop-loss orders are sell orders that trigger automatically when a traded security’s price reaches a lower, pre-specified price. They can help you mitigate losses on trades that don’t pan out the way you hoped. For instance, if you buy a particular stock at $32 per share, you could put a stop-loss order at $30 to close the trade if the price drops below $30 per share. Amateur traders should work with stop loss orders that will automatically trigger when your pre-defined stop-loss is being hit. This avoids a mistake that every trader tends to do – go in with a stop-loss plan but then deviate from it when things go against you. Using stop-loss orders is key to having complete control over your positions, particularly when engaging in day trading. The risk/reward ratio The risk/reward ratio is a measure for calculating expected returns for every dollar you risk on a particular trade. For instance, if your risk/reward ratio is 1:2, you could earn $20 for every 10 dollar you risk. It’s crucial to calculate the ratio after you’ve decided on your stop-loss and take-profit orders. If the ratio doesn’t match your requirements, you need to wait for a more profitable trade. Here’s how to calculate your risk/reward ratio: RRR = (Entry price – Stop-Loss) / (Profit Target – Entry price) If dividing the potential risk with the possible reward results in a value below 1.0, your potential profit is more significant than your potential loss. Make sure you maintain a favorable risk/reward ratio and look for ways to improve it consistently. IN order to be able to do that, you need to have a trading log book. The Batting Average The Batting Average helps you compare your winning and losing trades. Dividing your total number of wins by the total number of trades will help you analyze your past performance and identify areas for improvement. A ratio above 0.5 (or 50%) shows your trading strategy is working. Suppose you had 60 winning trades and 40 losing trades. Your Batting Average is 60%, which means you have more winners than loosers. Combining your Batting Average with your risk/reward ratio will help you manage potential losses more effectively. Here is a table which helps you better understand the relationship between the risk/reward ratio and the Batting Average: The table shows that you should have a minimum batting average or 40% or better. Many traders would consider themselves as so called ’2:1’-traders. This means they always try to have a profit of their winners at least 2x their pre-defined risk (stop-loss). As you can see in the table, ‘2:1’-traders have built in failure in their trading strategy as they can be wrong more often than right and still make tons of money – a ‘2:1’-trader can be incredibly successful at a batting average of only 40%. This means the ‘2:1’-trader can only have 4 winners out of 10 trades and still be highly successful.
BITSTAMP:BTCUSDEducation
by JS_TechTrading
TRADING - TRUTH VS LIE 📉📈 A financial background can be useful for understanding how forex and other markets work. However, more beneficial are skills in math, engineering and hard sciences, which better prepare traders for analyzing and acting on economic factors and chart patterns. It doesn’t matter how much awareness you have about financial markets – if you can’t process new data quickly, methodically and in a focused manner, those same markets you thought you knew so well can eat you alive. ANSWER: LIE EXPERT TIP: To prepare for trading, focus on developing analytical skills rather than boning up on financial knowledge. Trading is like running a business. In order to be successful, you need to learn from mistakes and have rules in place to help protect your capital. Like a business, it’s crucial to have appropriate strategies on hand for varying market conditions. Setting up a business is easy, and similarly, trading is easy too. Developing successful strategies and making money? That’s the hard part. ANSWER: TRUTH EXPERT TIP: It will seem easy if your early trades go well, but long-term profitability is a different matter altogether. Make your life easier by researching your trades, using the right position size, setting stops and keeping a handle on your emotions. Can you be successful with a small trading account? It depends on your definition of successful. An account needs to be large enough to accommodate proper risk parameters. But success is relative; a high rate of return is based on percentages and not on monetary amounts. For example, a 20% return is a 20% return regardless of the account size. However, if your 20% return isn’t worth enough in hard cash, it might be hard to incentivize yourself to improve as a trader. ANSWER: IT DEPENDS EXPERT TIP: Your account size will depend on your goals and your prior success. Naturally, experienced traders will have a larger account but to begin with, concentrate on that rate of return percentage. Bragging rights be damned: the number of trades you win is irrelevant. Profitable traders simply make more money than they lose. Say you win five trades and make $5,000, but lose one trade and lose $6,000 – you have won more trades than you have lost but are still down overall. Profitable traders will set rigid risk-reward parameters for a trade – for example they might risk $500 to make $1,000, a risk-reward ratio of 1:2. If a trader makes five trades using this method, loses three of them and wins two of them, the trader is still $500 in profit ($2,000 profit-$1,500 loss). Don’t be afraid of taking a few hits: if your process is sound, one big winning trade can reverse your fortunes. ANSWER: LIE EXPERT TIP: Many successful traders will be losing more trades than they win, but oftentimes it won’t bother them. Focus on getting the right setups rather than worrying about the ones that got away. How much time you spend trading, and monitoring trades, will depend on your trading style. Those employing a scalping strategy, for instance, will make a large number of transactions per day, entering and exiting many positions, and will need to pay close attention to their trades on the shortest timeframes. However, position traders won’t need to spend as much time monitoring, as their transactions may last weeks, months or even longer – meaning long-term analysis will account for short-term fluctuations. ANSWER: IT DEPENDS EXPERT TIP: Ask yourself what type of trader you are. Shorter timeframes will mean monitoring and analyzing constantly – being ‘always on’. If you favor a more relaxed approach you may be suited better for position trading. Some traders advocate a ‘mental stop loss’ when the market gets tough – that is, relying on oneself rather than a computer to set a level at which to exit a losing position. The problem is, a ‘mental stop loss’ is just a number that makes you worried about the money you’re losing. You may fret about the direction of the market - but you won’t necessarily be compelled to exit your trade. A fixed forex stop loss is completely different – if your stop loss price trades you are out of the position, no ifs or buts. Exercising proper money and risk management means setting solid stops. Period. Answer: TRUTH EXPERT TIP: It can be so easy to neglect your stop loss. When a trade is going your way, the dollar signs can blind you - but you should protect yourself against the market turning. Spreads may represent the primary cost of trading, but they aren’t the be-all-end-all when it comes to choosing your market. You may find an asset that has a wide spread but represents a strong opportunity due to its volatility. Similarly, you may find an asset with high liquidity and a tight spread, but that isn’t showing much trading potential. Above all, you should let your trading decisions be governed by setups presented by the market, not the size of the spread. Answer: LIE EXPERT TIP: The spread can represent a significant cost to traders – but don’t let it be the sole factor dictating your choice of asset. The economic analysis key to a fundamental approach helps give traders a broader view of the market. Sound knowledge of the underlying forces of the economy, industries and even individual companies can enable a trader to forecast future prices and developments. This is different to technical analysis, which helps to identify key price levels and historical patterns, and provides conviction for entering/exiting a trade. It’s true to say that expertise in economic analysis is important. However, so too is expertise in the technicals. Many successful traders will look to combine fundamental and technical analysis so as to be in a position to draw on as wide a range of data as possible. Answer: TRUTH EXPERT TIP: It may be worthwhile to devise a strategy accounting for the nuances of both technical and fundamental analysis. News can create big moves in the market, but that doesn’t mean trading the news leads to the biggest opportunities. For a start, the volatility of important news events often makes spreads wider, in turn increasing trading costs and hitting your bottom line. Slippage, or when you get filled at a different price than you intended, can also hit your profitability in volatile markets. On top of these drawbacks, traders could get locked out, making them helpless to correct a trade that moves against them. ANSWER: LIE EXPERT TIP: ‘Trading the news’ can seem like a fashionable thing to do, but market movements can be unpredictable at the time of major releases. It’s often best to steer clear during such high volatility. Excluding emotions from trading is an impossible endeavor. It can lead to more internal conflict than benefits, which is why managing emotions is a better way of looking at it. You have negative emotions like fear and greed that need to be managed without suppressing positive ones like conviction that help drive you towards the best opportunities. Answer: TRUTH EXPERT TIP: Even the most experienced traders feel emotion in the heat of the markets, but how they harness that emotion makes all the difference. Source: DailyFX
OANDA:XAUUSDEducation
by Hsan_BenAhmed
2
CORRECT AND INCORRECT RISK MANAGEMENTHello everyone! Today I want to remind you about the risks! Risk management is very important in every trade , but most traders are too lazy to act according to the rules, so I decided to remind the basic rules. They look simple, but following them will greatly reduce losses and increase the win rate. Let's go! Correct calculation of possible losses Beginners are AFRAID to think about losses. And even more so to count them! But it must be done, otherwise you will lose much more than you should. Even BEFORE opening a position, you should know how much you are willing to lose under unfavorable conditions. Cut losses and let your profits grow It's strange, but people are ready to quickly fix a profit, but not fix a loss. Premature profit-taking is a normal phenomenon, as is overexposure of unprofitable transactions. why? Because traders are afraid of losing profits and hope that the loss will decrease and even turn into profit. Don't move your stop loss If you followed the first advice and calculated the stop loss, and after placing it you started moving, then you did not understand the essence! Stop loss is very important and it is important not to move it. In each trade, you risk a certain percentage and should not increase this indicator by moving the stop loss. Monitor your drawdowns It's unpleasant to lose, it's unpleasant to analyze your losses, but you have to do it. Without loss analysis, you will not get better as a trader. You have to keep track of losses, you have to analyze trades to improve your trading and not repeat mistakes. Opening positions without risk management Most traders don't think about risk at all, much less risk management. Most of them open trades without risk management and therefore most of them lose all their money. Trading without stop losses The fear of losses and the fear of being wrong leads to the fact that the trader does not set a stop loss. If you do not set a stop loss, know that the stop loss is still set, how? It's simple, in this case your stop loss will be equal to your capital. The position will close when your account is 0. Is it easier this way? Let the losses run Why don't traders close unprofitable positions? As mentioned above, it's all about hope . do you think that the price will sooner or later go in your direction? Perhaps. But by that time, most likely you will already be closed by margin call. Ignoring drawdowns and other important indicators of risk management Ignoring is a favorite thing of novchikov. They think that they have understood everything, they think that the market will spare them. Unfortunately, the market doesn't work that way. Risk management was invented long before you and will be and will be used after you. And all because it works and without it YOU CANNOT BECOME a SUCCESSFUL PROFESSIONAL TRADER . And then it's up to you who you want to be. Traders, if you liked this idea or if you have your own opinion about it, write in the comments. I will be glad 👩‍💻
Education
by Lingrid
18
Great mentors I have found (Trading)Hello. I'd say 95% of investment/trading content out there is crap. I said I can make a list of good mentors who have truly helped me on my journey. So here they are. Bob Loukas (You can find him on twitter and some videos from youtube). Would have put links but it's not allowed. " Intermediate time-frame swing trader but also takes shorter scalp trades when there is an opportunity. He has been trading 25 years , and some of that time as a full-time trader. He is recognized as an expert on trading market cycles and places a significant importance on risk management . I like to consider myself an educator on trading and investing, along with being a passionate entrepreneur". Focuses on calmness, market cycles, psychology, mindset, market trends, key levels, breakouts and moving averages. I remember when I found Bob Loukas from youtube. He had a video back in 2019 january when BTC was around 3,6k and he said "if you panic sell now, you are going to regret that for a long time. This is time to accumulate." Mitch Ray (Twitter and youtube). "Technical Analysis with Mitch Ray is your #1 Source for Trade Setups and Market Updates" I think Mitch has best free trading content what I have found from youtube. It amazes me that he doesn't have more visibility when there is these moon boys everywhere. (I guess people like to believe that they can get rich overnight) He's making live market updates and technical analysis almost every day on youtube. Focuses on harmonics, fibonacci, channels, key levels, market trends, candlesticks, breakouts, fundamentals. Peter Brandt (Twitter) Legend "World renowned veteran Trader of classical charting principles for over four decades and #1 author on Amazon with trading book Diary of a Professional Commodity Trader. A man dedicated to helping others in the world of market speculation". Focuses on classical charting, key levels, moving averages, breakouts, channels, parabolas, psychology and patterns. Big Cheds (Twitter and youtube). "Author of best selling book "Trading Wisdom". CMT level 1 and trained in Classical Charting and Japanese Candlesticks. Accomplished trader and educator of more than ten years , he is dedicated to helping new traders avoid the early mistakes most make when getting started. Cheds enjoys sharing his knowledge of risk management and trader psychology ". Focuses on classical charting, key levels, fake outs (traps), breakouts, psychology, market trends, candlesticks, moving averages and patterns. Gareth Soloway (Twitter and interviews about markets on youtube) "Chief Market Strategist Gareth Soloway has been an avid swing and day trader since his days at Binghamton University where he studied Economics. After college, Gareth quickly excelled as a financial adviser but his heart was always in swing and day trading. He had this long standing belief that he could help investors make more money by advising them on shorter term investments (holding a stock for days to weeks) than the buy and hold crowd who lost 50% of their money during every market collapse. “Why not profit during the bear markets just like the bull markets”, he said. While helping others gain financial independence during the day, he spent his nights studying charts and price action, developing a unique market trading system that put his profits on a rocket ship. Some nights he would barely sleep when he found a new technique that was proven, once back-tested". Gareth has quite a track record . There's ofc big list of things I forgot to mention that these traders focus on. You better check them out yourself. Someone said it well . Learning to trade profitably takes thousands of hours . Why would it be any different than studying a degree which takes 4 years / 5000 hours? (The hardest easiest way to make money.) But if you find good mentors this learning curve gets much faster . That I noticed after I invested some money to study TA If you liked this. Tell me -Jebu
INDEX:BTCUSD
by PalenTrade
5
ELIMINATING RISK BEFORE PROFIT! EURUSD BREAKDOWNJust a bit of a breakdown on EURUSD.. We are still in a long term downtrend so my radar is still on short positions! I want to see what price does where it is at the moment and see if I can get given the opportunity for another short. We should get a big move down if price action respects this long term downtrend. RISK MANAGMENT personally I never risk more then 2% of account balance but like I've explained, once I move straight into profit I move stops to eliminate risk.. if price returns to that area more then likely price will not go our direction.
Short
by jamison_fx
Successful traders think like chess playersEvery day I get many questions from traders and more than half of them are: "What will X asset do today, will it rise or fall" or "Do you think X asset will reach Y price?" With very few exceptions, I say "I don't know". Surely my interlocutor will think that I don't want to tell him/her or that I'm an idiot. In fact, the correct answer is another: "I don't care" And now, dear reader, you will think not that I am an idiot, but a complete one. But bear with me a little more and let me explain using a real trading example on EurUsd Let's say we consider taking a trade on this pair so, we ask ourselves what do we know about it? 1. Fundamentally the USD is favored 2. The trend is down for more than a year. So, we want to trade in the direction of the trend and sell this pair Looking closely at the chart we see that EurUsd is contained in a downwards channel and recently found support in the 0.99 zone. Last week, the pair corrected and reached a high at 1.0150 and reversed exactly from the channel's resistance, leaving a nice and strong bearish engulfing on our daily chart. Going further with our judgment, where do we want to sell this pair? Now, considering my approach, I see a good place to sell in the 1.0030-1.0050 zone. So we set a sell limit order in that zone (Remember, professional traders use pending orders) We also consider at this moment the point where our bearish outlook is negated. We get 1.0150 for our stop loss. Now, using again my personal trade, let's say we set the selling order at 1.0030, with a stop loss at 1.0150 we have a potential loss of 120 pips. We know that every pip move on EurUsd represents 1usd for 0.01 volume, so 12usd potential loss on 0.01 trade for our trade. Now, let's consider volumes. What potential loss are we "comfortable" with? For the sake of example let's say 120 USD, so a 0.1 volume. Now let’s see where we can take profit. 0.97 zone is the falling channel's support, so there. Looking at such a trade we have 120 pips or 120 USD potential loss with 330 pips or 330 potential profit. This gives us a close to 1:3 risk-reward ratio, a very good one. And now, maintaining the analogy from the title is the market’s “move” turn And the market can do only 2 things at this point: fill our pending order or not. Considering that I don't hold pending orders after NY's close, if the market doesn't reach my level by then, I will remove the order, and tomorrow I will start over again by analyzing the market. The second is to trigger our limit order as is also the case for my trade, and we are in a running trade now. Now, with a trade running is again the market's move. So, what are the possible scenarios? 1. The market rises and hits our SL. Although an undesirable scenario, we knew from the start that it’s a possibility and like every trade, this also carries a risk. We considered it and assumed it from the start and didn't trade more than we could afford to lose in a trade. So, we take it like a stoic and move on to the next trade and market analysis 2. The lovely scenario in which EurUsd breaks 0.99 support and falls to our target. So, our reasoning was correct and we now have a trade that brought 330usd in our pocket, but more importantly we traded disciplined with a good R: R 3. The market falls below 0.99 but reverses. Now we can also consider some action - Move SL in BE and let the trade run - Close half to get some money off the table and move SL into BE - Close all trade In conclusion: As you can see, you don't need to be Gary Kasparov to be a good trader, the market's "moves” being in fact just a few. All you need to do is to be aware of these moves and have a plan for each of them. This way you will not end up wondering every minute "where will EurUsd go, it will rise, it will fall", you will not trade emotionally or recklessly. As Benjamin Franklin once said: "Those who failed to plan, plan to fail", but it is not your case, because, as a good trader you always trade with a plan and know from the beginning all that the market can do. Best regards! Mihai Iacob
Education
by Mihai_Iacob
17
Stop Loss Alone is not Risk Management - What is Your SystemTo be successful, you must develop consistency in your trading. You can achieve this by creating a system to trade. One that provides an edge to fit your lifestyle and personality. Discipline is required to stick to your system so that you can measure results (wins and losses) over a large number of trades. A simple journal helps you to measure your trades. This provides edge and success unfolds over time, requiring a strong mindset to create, adhere and measure. Goals are achievable through steps that are part of the process. Things to consider when developing your system are: Market Phase, Price Structure, Areas of Value, Areas of Entries as well as Exits, Multi Time Frame Analysis, Trend Lines, Support and Resistance, Dynamic Support and Resistance etc. Pro Tip: Trade clean and don't clutter your charts. Trade around a couple of levels with a single indicator. Be PATIENT to let trades come to you once you have made a trading plan. And when the market enters your zone, be READY to take action and trigger your entry based on rules. If you're a new trader or a struggling trader, feel free to reach out and ask me a question. If you liked this idea or if you have your own opinion about it, write in the comments. The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations.
Education
by imr4nkh8n
Trading Psychology | How to Perceive Your Trades 👁 Hey traders, In this post, we will discuss a common fallacy among struggling traders: overestimation of a one single trade. 💡The fact is that quite often, watching the performance of an active trading position, traders quite painfully react to the price being closer and closer to a stop loss or, alternatively, coiling close to a take profit but not being managed to reach that. Fear of loss make traders make emotional decisions: extending stop loss or preliminary position closing. The situation becomes even worse, when after the set of the above-mentioned manipulation, the price nevertheless reaches the stop loss. Just one single losing trade is usually perceived too personally and make the traders even doubt the efficiency of their trading system. They start changing rules in their strategy, then stop following the trading plan, leading to even more losses. ❗️However, what matters in trading is your long-term composite performance. A single position is just one brick in a wall. As Peter Lynch nicely mentioned: “In this business, if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” There are so many factors that are driving the markets that it is impossible to take into consideration them all. And because of that fact, we lose. The attached chart perfectly illustrates the insignificance of a one trading in a long-term composite performance. Please, realize that losing trades are inevitable, and overestimation of their impact on your trading performance is detrimental. Instead, calibrate your strategy so that it would produce long-term, consistent positive results. That is your goal as a trader. ❤️If you have any questions, please, ask me in the comment section. Please, support my work with like, thank you!❤️
Education
by VasilyTrader
15
2 paths for BTC 1H chart,both long?hi folks.previous idea still going.despite the pattern changing its formation from past idea,our target OR stop has not touched yet.as I told you before,it was a risky trade.if you have opened a long trade like me,you should be in profit.I have 2 suggestions for you : "either save profit now or move stop loss below 20500".but be advised,moving stop loss makes your trade a lot riskier and you should be a master at risk managment to do so! if you have not opened the trade,I think an entry around 20500 would be a good place to go long.but remember,this is still a reversal trade and risky! good luck all!
Long
by NikanShakeri
BTCUSD 3RD BEAR FLAG OF 2022?BTCUSD Daily TF Interested to see if this bear flag pattern plays out again this year. As a precaution, I've exited most positions with the anticipation of the internal support failing which could see a selloff back to the lower band of the ascending channel which is building up a pretty nice bear flag. I think that if this moves it'll be quick, very similar high-volume moves were made on 01/06 & 06/04. If I am correct and the current bear flag pattern completes then my first target would be 16k (internal measured move) which aligns pretty well with former validated support from NOV2020 and also has acted as a resistance level in the 2017 Bullrun after the top was put in. The final flagpole target puts the price back at 5k (which is ludicrous IMO) but we can never say never, especially in this current financial climate.... Keep a close eye on RSI and the current uptrend it is in, if it fails to swing high and cracks the uptrend it will most likely retest the 50.00 midway mark. If that fails then it's game on for the bears for an unknown amount of time. As always keep your RISK MANAGEMENT and POSITION SIZE in the forefront of your mind in the current climate and also your BIAS. Do I think this pattern will complete? potentially.. Would I be angry if it did? Nope (good op to potentially accumulate if possible).. Would I be angry if it doesn't? Nope (I managed my risk and kept my current capital) "DISCLAIMER: NO ADVICE. The information presented here is general in nature and is for education purposes only. Nothing should be considered to be advice. You should consult with an appropriate professional for specific advice tailored to your situation."
BITSTAMP:BTCUSDShort
by Trader_Johnni
1
NYSE: Risk Model for Swing-TradersStock Market Ramps Higher on Friday, July 15th, fueled by strong earnings and economic data Stronger-than-expected retail sales in June fueled positive sentiment in the stock market. But Wall Street also got more good news when some inflation components of the Empire State manufacturing index and the University of Michigan consumer sentiment survey eased inflation concerns. Also, the stock market responded well to the higher than expected CPI inflation report last week. This indicates that the market has already discounted a lot. UNless we do see a major depression type of environment, we are likely clode to a bottom. More time might be needed to digest the recent bear market declines. Now it is highly important to watch your stock lists. New leaders of an upcoming bull market bottom first, sometimes months ahead of the major market indices. Our risk model for swing traders show an average risk rating. Swing-Traders should try their first pilot buys, exposure should be in the range of 25%. If stocks in your own portfolio start working, decrease risk quickly by adjusting your stop losses. Use your gains to finance the additional risk of new buys. Overall exposure should currently not exceed 50%, even if your pilot buys are working. Risk Model - new 52w highs vs lows and # of stocks abive/below their 200d MA is still in the red zone. Much more improvement is needed here efore we cann call it an easy dollar environment again - up / down volume is the first critical indicator which is in the green zone now. A very encouraging signal that we may have reached the bottom - the contrarian indicators margin debt and bulls vs bears also confirm that a new bull market might be close
AMEX:SPYLong
by JS_TechTrading
BTC and Risk ManagementAs you will have seen, various asset classes have been PLUNDERED amongst poor market sentiment. As I discussed, this is an INEVITABILITY. You will not escape it and it is certainly not going away. If you were prepared BEFORE hand you will be OK. IF you were not so prepared you may be a little worried. But you can always learn and move on so that next time you are prepared. The Markets are simply a swing of variance. What do I mean by that? Well It means you have highs, lows and everything inbetween. Your job as a Trader is to last in any times and flourish. You will deal with DD - this is NOT a problem if you are prepared beforehand. Of course this requires a plan referring to your MAX position size VS your equity. It also involves how many times you are willing to go long and where you will do so. As you can see, if you had used SPLIT positions and DCA methods accordingly you could spread out your risk. If you do so at appropriate sizes based on the inevitable fact the market is going to swing down amongst poor sentiment, you would be able to survive it calmly with no panic at all. So, plan your Trading BEFORE these things happen. Learn key Risk management methods as this makes up a very large part of Trading. If you do not have a plan it simply will not work. I hope that helps. Plan AHEAD so you are not caught out.
BITMEX:XBTLong
by WillSebastian
5
Risk management in tradingWhen trading on the stock exchange, you need to know at least the basics of risk management, but it is better to understand it professionally, because the main attribute of any transactions made in the financial markets is risk. Without competent, professional management, without risk management, it is impossible to stay in such markets for a long time. To be a successful trader, you must learn to assess risks, balance and reduce them. Only in this case, the capital will not only be saved, but also increased. Fundamentals of risk management To properly manage capital, you need to know about the following principles: 1. You should not invest even in the most tempting project more than half of the total capital. Among financial experts, this principle is also called "don't put your eggs in one basket" or "diversification." That is, in order to successfully continue your activities in the financial market, it is best not to invest all your funds in only one undertaking. More than half of the money must be left for other projects and for the continuation of their work 2. Invest in one position no more than 10-15% of the total amount of funds you have. Another advice from the category of diversification, which insures against ruin. He warns that one cannot invest a lot of one's funds at once, it is better to distribute them correctly and limit one's risks, and make the profit more stable. 3. The rate of risk in the transaction must not exceed 5% of the total amount of funds you have. If you follow this principle, then the loss ratio of any trader will be less than 5% of the total capital. Depending on which market and which strategy is used to trade, the percentage of risk can be reduced to 1%. 4. There must be a balance between diversification and concentration. While diversification is one of the most reliable risk management techniques for reducing risk, even its application must be measured. It is necessary to balance the diversification and concentration of funds. There is no need to turn your portfolio into a "stuffing" of investment instruments, you will only need to open positions in 5-7 groups of instruments. Before compiling a portfolio, it is necessary to determine the correlation between trading instruments. It may be zero, but it is preferred that it be negative. In this case, the future fall of one group of instruments will be compensated by the growth of other groups. 5. Place stop orders. In order to avoid large losses if the price change is not in your favor, it is best to take care in advance and set Stop Loss. It makes the price fixed, which will allow the trader to close the position at this price. The way the Stop Loss will be set is influenced by market analysis, as well as the personal readiness and ability of the trader to make dangerous, risky, but profitable transactions. When placing a Stop Loss, you need to correctly assess not only the totality of technical factors, but also the characteristics of personal qualities, in particular, your ability to take risks. 6. Determine the rate of return. For any operation in the market, it is necessary to determine what the ratio of profit and loss will be. Such a forecast is necessary so that, in the event of undesirable phenomena on the market, the risks are balanced. In the financial world, a good ratio is 3:1. The simplest example: if a trader risks $100, then his profit from the transaction must be at least $300 (300:100 is the same as 3:1). If for some reason such a ratio cannot be achieved, then it is better to refuse the deal.
BITSTAMP:BTCUSDEducation
by Crypto4light
2
FOMO - Analysis from a Trading PsychologistFOMO. Fear of Missing Out. I can feel FOMO’s omnipresence in the trading world right now. We have seen some large career changing moves in Commodities & Futures as of late. Extend the lookback time a few years and the Cryptocurrency universe is surely included. I decided to turn to my favorite trading psychologists, Brett Steenbarger,PhD. Brett has been in the trading game since the late 1970’s and his Nov 21’ speech on Trading FOMO piqued my interest. Below is a summary of what I took away from it, and some preventative ailments attributed to Brett’s psychological evidence-based outcomes. FOMO is a P&L Killer! At its core FOMO is a fear. The problem is not that we missed the trade, it’s that our brains perceive that missed trade as a threat to our future, our success, our reputation. When humans are afraid of something, or see a threat, it produces anxiety. This fear takes blood away from the part of the brain where higher level thinking takes place and sends it to the part that impulsive thinking lives. There WILL be poor decision making under the influence of anxiety. The key to solving this issue is to take the threat out of the situation. Solutions: Taking a break from the screen is healthy but it is not a long-term fix. Brett explains how to train in exposure therapy (His presentation explains this in greater depth.) Slow breathing and visualization are more adept at battling FOMO. If you can visualize a calming place or situation and pair it with that fear, daily practice and dedication will prevent blood flow to the impulse zone. Gradually, when FOMO comes around, you will experience feelings of safety. Combined with expanding your time of reference, understanding, and acknowledging FOMO will make those events look like potholes on a long highway. Missing a trade is unfortunate, but will it end my career? No. Will buying at the top, and then being so irate that I add to a losing trade and forgo stop orders end my career? It might. Will I be thinking clearly on my next trade with a fresh mistake permeating my thoughts? No. The best motivation to avoid FOMO is to develop emotional hate towards the negative consequences of it. In the fullness of time, the desire to avoid negative outcomes becomes self-reinforcing with repetition and therefore cements as an internal priority. This works across the board in other life scenarios as well. Tapping into other motivations besides P&L is one that really hit home with me as well. Brett dives into the desire to learn and grow as a greater motivator than just P&L alone. This addition will create a dual purpose to each trade. You are diversifying your outcome! If you come away from a trade with a negative P&L, but with a positive learning experience, you are building your Learning Capital. With time under this premise, your Learning Capital will be indistinguishable from your monetary statement. Instead of tying your value as a trader strictly to your P&L, tie your value to your consistency and risk management. The magnitude of your P&L is nothing without consistency. Risk management begets larger positions, lower drawdowns, and an overall better quality of work life. A Day comes with myriad experiences. Create a diversified life with people and activities that fulfill you outside of trading and your trading will improve. Reminding yourself daily of this is important. Tying all of this together is the practice of keeping a daily ABCD Journal. A - Activating Event – What got you upset? - Missing the trade in this case. B - Beliefs about the event – Little voice in your head – Why is this upsetting to you? “Other people are getting ahead of me, I’m not as good as they are” C - Consequences from the event – How does negative thinking affect your subsequent trading? I’m so upset about missing the opportunity I go ahead and miss the next one! Becoming proficient in ABC will allow you to recognize the triggering event in real time. You begin to identify the negative beliefs and become a pro at understanding the magnitude of the consequences. You can change the pattern of your behavior because the consequences are so front and center. D - Disputation- You are talking back at that negative thinking. How would you talk to someone you care about who is in that situation? Mentoring a teammate that missed a big play involves constructively lifting them up and helping them learn from it with a comforting tone. You aren’t going to beat them up. I welcome all feedback and am also here if you want to chat about a particular experience. Happy Trading! -Paul Wankmueller, CMT Blue Line Futures Director of Content & Education
NYMEX:NG1!Education
by CMT_Association
60
Your strategy will inevitably go through a Drawdown!Your strategy will inevitably go through a Drawdown. And there's nothing you can do about it to stop that. However, you can learn how to survive it! Today I will give you actionable steps, that you can use for the next time the market hit your strategy and you feel that everything is going wrong. Let's start with an idea of what a drawdown is, and why drawdowns happen. There are an infinite amount of trading strategies and tools that people use to trade and take advantage of specific market conditions. Some traders are better in trending markets, they trade breakouts. Other traders feel more comfortable in ranging markets, where they trade quick reversals on key levels. The Math is simple here. Trending strategies will have a poor performance on ranging markets, while reversal strategies will have a poor performance on trending markets. Detecting the beginning and end of trending cycles or ranging cycles, is blurry. So, if you agree with that, as I do, you can expect your strategy to start failing at some point. And that's the beginning of the drawdown. (This is true for the best traders in the world, as for the worst traders in the world. Nobody scape drawdowns, the quickest you accept this, the faster you can learn how to handle them properly) So let's start by saying that drawdowns are situations where your strategy experiences a lasting decline in performance, even if you are doing everything perfectly. Drawdowns, happen because strategies are made to take advantage of specific anomalies that can be found in one part of the market cycle, and when that market cycle finishes, or changes, your strategies become less accurate. -------------------------------------------------------------------------------------- It's important that you become aware of the Psychological consequences of Draw Downs , so you can have a countermeasure for this. Let's take a look at the most common ones: 1) Decrease in confidence (constant negative thoughts about your system) 2) Fear of entering the next trade. 3) Thinking about changing things in your strategy (deviations from the original plan) 4) Thinking about modifying the risk you are using to cover losses quicker. 5) Ceasing your trading execution, and looking for a new strategy. ALL THESE ITEMS, are the main situations you may start feeling when going through a drawdown. IF you are going through that, it's important that you understand that you are under a delicate emotional state, where your confidence is low, and you are prone to make more emotional decisions that 99% of the time, tend to increase the drawdown. So the way we handle drawdowns is by having logical and systematic processes in place instead of emotional ones. -------------------------------------------------------------------------------------- Here you have actionable steps to handle drawdowns: STEP 1 : You handle drawdowns by getting ready before they happen, not when they are happening. This is true for almost all disciplines, not only for trading. Airplanes have clear plans in case things start going wrong, instead of figuring out the problem at the moment, pilots go to the manual book, and use the template for this situation, plus the fact that they trained those situations several times in simulations. So, if you want to understand what a drawdown situation looks like in your strategy, you MUST go into the past, and when I say this, I'm not saying making a 3 week backtest. You need to go as far as you can in the past, to find that exact moment where your strategy is not working as expected. How many consecutive stop losses do I have? 3? 5? 15? 20? How long does this period last until everything goes on track again? 1 month? 3 months? or a year? These are the kind of answers you are trying to solve. When doing a backtest you are trying to understand two things. The first one is if your strategy has an edge. The second one is how hard you get hit when things go wrong! STEP 2: Work your risk management around the stats of your system. Imagine we reach the following conclusion "I have a system, that executes 10 setups per month" and the worst-case scenario I have found is 20 consecutive stop losses during 2 months. What I would personally assume is that 20 consecutive stop losses can be 30. So how much capital percentage should I risk on this system so I don't get knocked out if this TERRIBLE scenario happens. The answer for me would be 1% per setup. Under the assumption of this unique scenario, I would be 30% down, which is something acceptable, compared to the drawdown of conventional investment vehicles like S&P500 where we observed those kinds of declines, in the last years. The main point here is that you need to adapt the risk you are using on the strategy, to the stats of it, and your risk tolerance. -------------------------------------------------------------------------------------- Let's recap the key aspects of this post. 1) Drawdowns are inevitable, your strategy will be hit by this scenario eventually. 2) Drawdowns cause an emotional disturbance and are the main reason why people make really bad decisions. 3) We handle drawdowns by getting ready in advance. Through backtest, we can understand the edge of our strategy and the worst-case scenarios. 4) We adapt the risk of our strategy, by considering a terrible scenario, like 30 consecutive losses. This will not eliminate the feeling during this period, but it will bring you a work frame to make logical decisions based on data, instead of emotions. Implementing this type of thinking will make your strategy more robust, it will help you go through these situations, and most importantly it will protect you from making stupid things with a strategy that has an edge, and actually works! Thanks for reading!
BITSTAMP:BTCUSDEducation
by ThinkingAntsOk
129
Right on the DOT/USDTDOT/USDT 🟢entry: $18.060- $17.295 ❌stoploss: $17.730 🎯tp1: $28.420- $27.360 🔼potential %profit: +56.57% 🔽potential %loss: -10.66% r/r: 5.31 Hi Everyone, 🥀this trade idea is fairly self-explanatory. i see an inverse head-and-shoulder pattern developing. in addition to the chart pattern, there is significant volume and the left shoulder, the head, and (to a lesser extent) the right shoulder. this price/volume combination strengthens my confidence in the pattern. 🥀i am setting up the entry in a fairly tight range at the right shoulder, between $18.060 and $17.295. 🥀stop-loss is placed at an appropriate distance below entry, although there is not much in the way of price structure to give further guidance in placement. 🥀target exit is at the last point before price dropped off with volume and began to form the left shoulder of the pattern. check back for updates as the position progresses. feedback and constructive criticism is always appreciated. ✌️all good luck and always practice strict risk management!
Long
by TylerPhilip
How I'm setting stop losses on USDJPY using IchimokuIn my recent post I indicated that I am long USDJPY due to the higher timeframe bullish trend: A question that traders often ask is "how do I set a stop-loss when the market is moving up?". This applies if you are looking to enter your first trade in the trend, or if you want to trail a stop-loss on an existing order. The answer is simple when you use Ichimoku. Briefly, Ichimoku lines indicate the "market equilibrium" over various timeframes. There are three equilibrium lines (or "Han-ne" lines in Japanese). These are: 1. Tenkan-Sen - 9 periods / Short-term equilibrium (yellow on my chart) 2. Kijun-Sen - 26 periods / Medium-term equilibrium (red on my chart) 3. Senko Span B - 52 periods / Long-term equilibrium (red kumo cloud line on my chart) A Han-ne line is created by finding the midpoint of the highest high and lowest low within the set number of periods. If price is above a Han-ne line, it is said to be bullish in that timeframe, and the opposite for bearish. There is a lot more to learn about Han-ne lines and the meaning of the equilibrium, but for our purposes here, understand that these lines tell you the point where buyers and sellers meet. One of the reasons we know that USDJPY is bullish is because the Han-ne lines are angled up on the higher timeframes (4H and 1D). This means that the point at which buyers and sellers meet is increasing. In other words: we are trending up! Now: the secret for setting your stop-loss. If the Han-ne line tells us where the equilibrium is over the short/medium/long term, periods where the line remains flat are significant. If a Han-ne line, especially Kijun-Sen or Senko Span B, remains flat for multiple periods, it means that midprice has been established by many buyers and sellers. We can use these flat Han-ne lines as: 1. Support/resistance 2. Zones to place stop-loss orders As I look at a pair like USDJPY trending up, I am zooming into the lower timeframes (think: 15m or 30m) and looking for flat Han-ne lines. If I see several "zones" forming I can place my stop-loss just near the other side of that zone. This means I can receive adequate protection, but also know that if the price does clear that zone and hit my order, a reversal or pullback is likely happening and it will be a good time to exit anyway. We've already seen a flat Kijun-Sen line act as support on the 15m chart: You can use this concept for any pair, currency, stock, crypto, etc. The secret is to look for flat lines and use these as your support/resistance levels and stop-loss zones. Happy trading!
Education
by ichimokucorner