Risk Management is the identification, evaluation and prioritization of risks. Risk generally comes from uncertainty in the market place because of the natural disasters, failure of projects, accidents etc. Risk identification can start at the base of the surface level. A trader can lose all of his or her profit got from the previous trades in just one or two bad trades if the proper risk management is not employed.

            As the Chinese military general Sun Tzu said “every battle is won before it is fought”. The phrase implies that the planning and strategy wins the war the same way trading also should have a well plan before it. Stop loss and targets are the main key points that a trader can plan ahead. If you keep the stop loss and targets according to the trend of the market by a regular study you will never face lose any time. Successful traders know what price they are willing to pay and at what price they are willing to sell, and they measure the resulting returns against the chance of the stock striking their goals. If the adjusted return is high enough, then they execute the trade.

            Don’t focus on making money focus on protecting what you have. That cannot be possible without proper money management. Without proper risk management profitable trading is not possible. Here are some techniques to improve your risk management and avoid common errors which cause the loss of money.

            You must have a clear idea about where to put stop loss and which is the target you are going to put before your entry point. If it doesn’t match your requirement skip the trade. Otherwise you will be in a big lose. Avoid break even stops that will get out of potentially profitable trades, if you move your stops too soon. Never use fixed stop distance because volatility and momentum is constantly changed. No one can predict the market. In times of higher volatility, you should set your stop loss and take profit orders wider to avoid impulsive stop runs and to maximize profits when price swings more. Always compare win rate and risk reward together. Combining win rate and risk reward ratio can be seen as the Holy Grail in trading. Lack of self control may lead you to lose. First of all you must have a trading strategy and to follow this. You should have the willpower to follow the rules to realize the profit. Lack of self control blocks you from achieving consistent trading results.

Risk management should be a part of your business routine. For each decision you make for your business you should think about the risks involved in that and record it in your risk management rule. And it should be updated when external or internal business condition change. After all you must have the necessary capital to trade. And you should have the assets that you could turn into cash if it needed. So if you have the clear idea about the proper risk management technique obviously you can achieve goals in trading.

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