Rule 1: Do a preliminary homework.
Do his homework before the deal is a duty which couldn't be replaced. On each customer is well informed seller and each seller has a well-informed buyer. Each tries to maximize its profits. Before you put your money at risk, you should have a thorough, well-thought-out reason why you want to buy something that someone else wants to sell. Moreover, trade is a game “form of capital.” Ask yourself, what do I know of that does not know the seller (or buyer)? Be careful and draw some degree of respect to the person on the other side of the counter.
You need to be clear about what financial risk may encounter at any time. Of the domestic work includes evaluating the potential loss in case the market moves against you by 5%, 10% or 20%. Preliminary work at home on trade will also help you calculate the worst possible result, potential exposure to risk.
You can reduce the risk, if limited to transactions, to carry out examination of which is in your power (this is the preliminary homework). We know a trader, who rushed to buy futures on orange juice after a surprise cold snap in Florida. It was only later that he realized that damaged by frost oranges can be sold for the production of orange juice. In reality, a sudden cold snap has increased, not reduced the proposal of orange juice, and excess supply greatly reduced the rates on the futures of orange juice. If a trader has done a preliminary homework, he would know what to expect.
Rule 2: Create a trading plan and stick to it.
Every trader should create its own methodology trade. Methodology or model of trade may be based on fundamental factors, technical indicators or a combination of both. The methodology should be widely tested and processed until she demonstrates desired and long positive result. Before you invest any money, make sure that your trading methodology is reasonable and profitable.
Important part of your trading plan is to establish restrictions on the amount that you can lose. If you reach this limit, then quit the game. Stick to your trading plan and avoid impulsive transactions. If you do not follow your plan, then you don't.
Trading plan helps you identify and evaluate the key factors that affect your trades, and may be an important teaching tool for subsequent transactions. A reasonable plan trade inspire you with the feeling of confidence. Also it is unlikely that having a plan, you are going to trade impulsively.
However, do not follow blindly own trading plan. If you do not understand what makes the market, or your emotional balance somewhat compromised, close all positions.
Creating your trading strategy, don't listen to a broker and do not invest on the basis of market councils or rumors. Your money will be at risk. Before you trade, do the preliminary homework and consider their reasons transactions.
Rule 3: Diversify.
portfolio Risk is reduced through diversification. Don't bet on all of money for one transaction. Diversify the amount of risk from trading on one position is not more than 1% - 5% of your capital. (Contracts with various expiration dates on the same contract are considered a single position.) Consider a diversification in different markets and with different systems of trade.
To be effective, diversification should include securities that are not strongly correlated with each other (that is not moving in the same direction at the same time). High positive correlation reduces benefit from diversification. Carefully monitor the connection between all their positions, дебалансируйте and adjust its portfolio.
predefined stop order, limit the amount of risk and reduce your losses by fast moving markets. Please strict rule of stop-loss, for example, quickly leave the game if you lose 5%-7% - and follow him.
Rule 4: do Not invest all your money.
Before you make a deal, make sure you have enough capital to compensate for unexpected losses. If a deal looks unexpectedly profitable, perhaps you are too optimistic. Markets usually are rarely as good as they may seem at first glance. If the market suddenly turns down, it's reasonable to have some capital to compensate for the small loss or a margin call. Some capital allocated the additional purchase, reduces stress, reduces the need to take unnecessary risks and, usually, it helps us sleep better at night.
Rule 5: Use a stop order.
predefined stop order, limit the amount of risk and reduce your losses by fast-changing markets. Please strict rule of stop-loss, for example, quickly leave the game if you lose 5%-7%. Even the most experienced traders, not to mention the successful, use a stop order to limit the amount of risk. Make a commitment on the withdrawal from the game, if your plan does not work. Stop signals are needed to protect you. Use them when you start the game.
Some traders use the brake in time. If the market is not behaving as you expect, exit the market, even if you do not have to lose their money. Stop signals in time are a reminder that you should exit the market, if you are not sure what is really going on.
Rule 6: Trade with the trend.
it is unlikely that you suffer a loss, if you follow the trend of the market. The direction of the market does not matter, as long as you have a position on the appeared trend. If you have opened an unsuccessful position, then systematically decrease the size of the risk.
Rule 7: mistake and suffer losses.
Important aspect of risk control is the ability to recognize that you're wrong, and quickly go out of the game, even if it means losing money. Even the best traders from time to time, suffer losses. But we all hate to admit your mistakes, so this rule will find it hard to follow. Axiom is simple: give accumulate profit and minimize losses. Reduce the amount of risk if the market moves against you. Don't add to a losing position, hoping to compensate for the loss. If you do not understand what makes the market, then quit the game. Also, do not immediately after unprofitable deals are made following the deal, hoping to win back - we must first of cool emotions.
Rule 8: Trade, taking measures of protection.
the Most important trading rule is to play great in protection, not perfectly in the attack. Think first about what you can lose and compare this with the possibility of winning. Better take into account the possibility of negative developments ahead and make a plan, then more than a change after the fact.
Always allow the idea that the market can move against You - and get ready for this in advance. Calculate the maximum use of the loan. If necessary, adjust the levels of stop signal where it is more suitable. Create a plan to exit from the market. Therefore, when the market starts to move against you You're ready. Protect what you have.
Rule 9: Control your emotions.
All traders from time to time are experiencing severe stress and suffering losses. Anxiety disorder, depression, sometimes despair, are part of the game on the market. Part of risk management is the ability to control these emotions. Do not let your emotions rule your trade. Focus on what you do. Trade on the basis of informed, rational decisions, not emotions and fantasies.
Communication with other traders is one of the ways to maintain control over their emotions. Other traders understand the challenges that you faced and can provide important emotional support when you lose your courage. It helps to understand that you are not alone and that others have faced similar problems and have experienced them.
Rule 10: If in doubt, leave the game.
Personal doubts indicate that with your plan to trade something wrong. Quickly exit the market, if:
- the Market behaves irrationally;
You are not sure of the position;
- You don't know what to do;
- You can't sleep at night.
Before you put your money at risk you should be sure in what you are doing, and that you are lucky.
The basis of risk management consists of four main steps:
is the Full understanding of what the risk is subjected to the deal.
- Elimination of possible risks that are not necessary.
- Be selective in what risks can be subjected to a deal.
- act Quickly to reduce the amount of risk if the market moves against you.
For many traders key moment risk control is the ability to reduce losses before they lead to ruin.