Trading in stock exchanges, whether local or international, requires the investor to be familiar with many skills so that he can reap profits or stop losses if he is exposed to it.
Among the most important basics that an investor or speculator in the stock exchange needs to learn is risk management and diversification of investments.
The well-known American website Investopedia published an article explaining the most important elements that an investor in the stock exchange must learn to manage risk.
You should not put more than 1% of your capital in one trade because that greatly reduces the amount of risk that you may be exposed to
One of the most important elements that a successful investor must pay attention to is to avoid the mistakes that many speculators make, such as buying shares for more than you can bear.
And the money markets of all kinds contain a large degree of risk, and therefore the purchase volume must be calculated and not invest with all your money so as not to be surprised by an unexpected emergency change and the index drops unexpectedly or any personal accident that forces you to withdraw a quantity of your money and here you will be exposed to There is a possibility of a huge loss and the main reason will be that you did not determine the appropriate position (POSITION) for your purchase of shares and determine the size of the loss that you can incur before it begins.
How to manage trading risk
One of the most important steps that you should start with is identifying the most important factors or risks that you may be exposed to.
Identifying these risks will make you consider making a backup plan, which will give you the ability to act if these risks become a reality.
Also, you should take into account the political risks that in many cases negatively affect the stock markets and speculation in the stock exchange.
1% rule
In short, this rule says that you should not put more than 1% of your capital in one trade, as this greatly reduces the amount of risk that you may be exposed to.
Center size
According to the 1% rule, if you have a thousand dollars in your account, you should not put more than 10 dollars per position.
The key to making a profit when applying the 1% rule is the number of winning trades, not the number of winning trades.
For example, aim for 5 winning trades where you risk 1% on each position, rather than 1 winning trade, where you risk 5% of your capital.
In the long run, this has better chances of making profits and preventing big losses.
Some traders modify this rule by increasing its high limit to 2%.
However, this is usually not recommended if you are a beginner or a trader who is still building and testing his risk management strategy The idea of sizing a position is simple, never risk too much capital in one trade.
Take profit orders are used in combination with stop loss orders.
In this way, the trader can ensure complete control of his open financial positions
Use stop loss
The idea is to set a stop loss limit, and the stop loss will enable you to control how much you are likely to lose on any trade.
Stop-loss limits are applied through specific orders to place a mechanism that sells your assets once they reach a certain price level.
If the stock price remains above it, the stop loss limit will not be triggered, and your position will remain open.
With stop-loss limits, traders can automatically close positions when the market turns against them.
Use take profit orders
You must commit yourself to setting take profit points to close open positions.
It is preferable to do this manually so that if the specified price level is not reached, the take profit orders which are very similar to the stop loss orders will not be triggered in the sense that they allow you to close your position when the preset conditions are met.
Take profit orders are often used in combination with stop loss orders.
In this way, the trader can ensure complete control over his open financial positions.