Risk management within any trade market could very well be the difference between crashing and burning from the start, and making a decent profit from your endeavours. Whether you’re trading assets, or you’re delving into the world of Forex, there are plenty of risks that need to be taken into account before you get started. However, knowing the risks isn’t always enough. While this can help you avoid them to an extent, risk management is a much-needed skill you need to learn. Here, we’re exploring just how you can learn to manage risks before you take up a full time trading career!
Why Is Risk Management Important?
Before you can truly understand how to manage the risks, you should probably first understand why risk management is so important. When it comes to trading, knowing that risks exist isn’t always enough to make you stop and think things through, but with the right risk management strategies in place, you could very well be saved from some less-than-pleasant losses.
Risk management is called “one of the most key concepts to surviving” when it comes to trading. The term itself is on that most traders will hear and repeat over and over again, but how many truly know how to apply their textbook techniques? As a result, new traders come into the industry and see long-time traders taking huge risks with little management and will often do the same but this can actually damage the market. The higher the volume of traders taking big risks, the bigger those risks are going to need to be to make up for it. This can make a market volatile, and much more difficult to get into.
Market’s aside, good risk management will help protect the trader from losses that they can’t truly afford to have. With good risk management, you can protect your money, your assets, and live to trade another day!
How To Manage Risks
Now you know that you should practice good risk management, you may be wondering just how to go about actually doing it. Through careful planning, the right level of experience, a deeper understanding of how things work and plenty of industry support you could be well on your way to good risk management. Let’s take a deeper look:
planning these points and sticking to them, you can prevent excessive loss, and ensure that you keep a profit.
- Deeper Understanding
As much as first-hand experience will give you a natural ability to manage risks, you can learn a certain amount before you even begin to trade. Research, read and learn how the industry works as best you can prior to ever making your first trade, or opt to practice on smaller markets with smaller amounts while you gain a true understanding of what trading entails and how it can be used as your full-time job.
- First Hand Experience
While first-hand experience isn’t something that every trader can have, especially when just joining the industry, it is something that will help you gain a natural ability to predict and manage risks. You’ll learn your industry and your markets, picking up on patterns and developing a trading style that works for you. This truly is a matter of riding out rougher waves, however while you learn your market, simply avoid trading more than you can afford to lose.
Planning is the key to not only managing risks, but avoiding them completely. Blindly trading, even if you partner up with proclaimed experts for 4 years in a row, is unlikely to win you profit, and certainly not in the long term, so it’s important to plan carefully as far in advance as possible. Stop-Loss (the point at which a trader will sell a stock and take a loss) and Take-Profit (the point at which a trader will sell a stock and take a profit) points are key terms in trading, and most traders will use these as guidelines for their own trades. Over time, you’ll quickly learn what price you’re willing to sell at, and what you’re willing to pay, and S/L and T/P points will help you determine when to sell and when to pay. By
- Industry Support
Industry support is not only important, but it’s also one of the best sources you have. When you lack the support of those in your industry, it can be a blow to your morale and when you lack motivation, your career will undoubtedly fail. For that reason it is important to turn back to basic industry’s know-how, and Kubwalo-Chaika put it well in her words: ‘leadership that uses tried and tested skills such as networking, environmental sensing, customer retention and sales as well as risk management at the forefront of their organisations will carry the day’.
Trading is a tough industry to be in, and it takes a mixture of skill and passion to stick with it through the tougher times. Markets can be volatile, and when they start to drop in value or crash, having the support of the industry can be a great way to pick yourself back up, ready to ride out the next positive wave.
If you’re looking to follow a career in trading, managing the risks associated with it will help you stay afloat. Volatile markets, difficult trades and unfortunate losses can be difficult to navigate, but luckily there are plenty of ways to manage the risks associated to continue making a profit, and hopefully our tips can help you get started.