Trading mistakes: risk management
IG's Axel Rudolph tells IGTV's Jeremy Naylor why trading with risk management in mind all the time is crucial to minimise losses.
(Video summary)
Managing risk
To be successful in trading, it's important to always focus on managing your risks. Before making a trade, you need to decide how much money you're willing to risk and how much profit you hope to make. Ideally, you want to make at least two or three times the amount you're risking.
By being right more often than wrong and making more money on your winning trades than you lose on your losing trades, you can become a successful trader. Even if you're only right about 30% of the time, you can still make money as long as your profits on your winning trades are much higher than your losses on your losing trades.
Evaluate the risks
The key is to consistently evaluate the risks associated with each trade and not make impulsive decisions based on your emotions or desires. Instead, you should approach trading in a logical and calculated manner and consider the potential risks involved. By adopting this mindset, you're more likely to engage in disciplined trading and make informed decisions based on calculated risks.
This approach acknowledges that there are no guarantees in trading and that risk is always present in the market. Therefore, by always prioritising risk management, you increase your chances of consistently making profits in trading.
For example, let's say you're considering buying stock in a company. You do your research and calculate that the potential profit from the stock going up is three times the amount you could potentially lose if the stock goes down. This means that even if you're only right about 30% of the time, you would still make money overall.
In summary, successful trading is all about managing your risks. By carefully considering the potential risks and rewards of each trade and making disciplined decisions, you can increase your chances of making consistent profits. Remember, there are no guarantees in trading, so prioritise risk management at all times.
This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
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