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Trading, risk management

Risk management is one of the key points when you trade in any market

I have to mature the risk management mindset and measure how the actions I perform are working with respect a level of exposure that I want to take.

Definition of level of exposure

  • Perform operations between 0,5% and 2% of the value of your portfolio.
  • Understand that for higher volability, the time-spam for trading has to be short, as the risk exposure is higher.
  • When you define a move you have to define the amount or percentage that you expect to earn.
    • You will have to define a ratio of earnings/loss.
    • This ratio should be between 2 – 3. This means that if you expect to with 20 points, you should stop when you are losing 10 points; this corresponds to a “2” ratio.
    • A ratio close to “2” is more conservative. A ratio close to 3 is more risk.
  • If you lose 20% of your portfolio, stop trading, think about what is happening with the right perspective. If you not do it, you have high percentage of losing all.
  • A loss of 10% in a month is unacceptable, this is also an event that should trigger you to stop.
  • Backtest, backtest and backtest is an exercise that really improve the results and reduce the risks.
  • Review trading bias regulary.

Stop Loss

  • Define where to put the stop-loss.
  • Do not touch the stop loss.

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