Most active traders are intimately familiar with basic risk management — planning entrances and exits before execution and following through with appropriate stop-loss and take-profit orders. However, risk management is much more complicated than simply being aware of at which price points you are willing to buy and sell.
This most basic strategy should not be belittled or ignored, however; one of the starkest differences between success and failure in active trading is going into an execution confidently prepped or ridiculously unprepared.
Strict risk management “rules” are in place to eliminate emotional overhaul. By relying on pre-set numbers reinforced by accurate historical evidence, you are less likely to get in your own way and make rash decisions.
So, what can you do beyond the standard implementation of S/L and T/P orders?
For one, consider adjusting your S/L points to stop-limit orders, which can help remove the possibility of selling during a time of volatile decline as opposed to orderly patterned decline.
Watch this video published by Investopedia for an overview on the differences between stop orders and limit orders.
The Best Risk Management Advice: Don’t just do research once; stay on top of your stocks’ history-in-the-making.
As the sessions pass, history is constantly rewritten, taking into account the newest movements in relation to all of those in the past. Key support and resistance levels are continuously altered every day; the levels may only change by miniscule percentages, but with a single day’s data included, the overall trend longevity shifts.
Ideally, these above two methods should be used in conjunction with the following considerations:
Also, remember to put the stock in a larger context. Use known fundamental events to prudently influence your entrances and exits. Earnings releases, mergers and acquisitions can all be categorized as key time periods to be in or out of a trade.
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