Amidst the volatile market in the recent weeks following the yuan devaluation by PBOC, risk management is a critical aspect to prevent losing too much.
“The only way to make money, is not to lose money”
And when loss have to be made, make sure your loss are never more than your gains. This is only possible with planning. Before you begin trading, you need a trading plan, and a very important part of it is a risk management framework.
A risk management framework should include:
- Position sizing – limit the lot size of each trade
- Maximum account exposure – limit the total lot size opened in the account, so exposure is controlled
- Stop losses – do not lose more than 2% of equity on each trades
- Equity preservation – cap losses to protect account balance, which makes it easier to recover
- Take profits – withdraw gains regularly, only when withdrawn do the profits are really made
“Control the losses and the gains will take care of themselves”
Practise safe trading.