How to manage your exposure to risk: Introduction

risk management

Trading is a naturally risky activity, and finding the appropriate risk level isn't always easy.

Risk management, which is directly linked to the size of a position, is one of the key aspects of trading - no matter what your timeframe is.

If you take two traders who make the same exact entries and exits, risk management and the size of their positions will make the difference in their respective performances.

Nevertheless, it is extremely rare for beginning traders to give this subject the attention it deserves.

All sorts of experts are trying to sell solutions dedicated to the timing of entries rather than the "sizes of positions" and "risk management".

However, it has been proven many times that risk management and the size of a position are far more important than market timing.

Unfortunately, the glamourous aspect of trading, namely strategies and techniques, is the focus of attention of most traders. The result is that risk management and position sizing are very rarely talked about.

There are several different approaches to risk management:

-> Fixed Risk Ratio

-> Risk in terms of percentage

-> Risk according to volatility

Previous: The keys to becoming a Forex TraderNext: Money Management

Bibliography

Van K. Tharp "Developing a Winning Trading System That Fits You" Van Tharp Institute

Van K. Tharp "Trade Your Way to Financial Freedom" Mcgraw-hill Companies

Ryan Jones "The Trading Game" John Wiley & Sons

Ann C. Logue "Day Trading for Dummies" John Wiley & Sons

Balsara Nauzer "Money Management Strategies for Futures Traders" John Wiley & Sons

Curtis M. Faith "Way of the Turtle" Mcgraw-hill Companies