I was wondering what kind of Risk Management Models traders out there are using. Maybe we can get some insight into the kinds of Models out there to manage Money and Risk in trading. After all, capital preservation is the traders number one goal in trading…
I try to ensure that losing trades cost me not more than 2% of my account capital. This is through setting a stop-loss exit order at a suitable TA-derived level and adjusting position size accordingly, or through early manual exit on deteriorating technicals.
On a $1,000 account, open trades with a $10 risk (1%) and maximise open trades at no more than 5x $10 (5%).
Using risk management models help us to know the kind of risk exposed to our trades and their prevention and I usually prefer using it. An important part of risk management is identifying, evaluating and mitigating risks that result from market movements that are contrary to expectations. In trading we usually control risk by using tools like stop loss, indicators and using strategies like hedging.