Stock Market Beginner’s Weekly Guide: Trading Tips, Indicators & Strategies : Week 5 – Day 2
By CapitalKeeper | Pre Market Opening | Indian Equities | Market Moves That Matter
Week 5 – Day 2: Mastering Risk Management
Series: Advanced Trading Psychology & Risk Mastery – CapitalKeeper
📘 Objective:
To equip traders with practical risk management strategies that protect capital and improve long-term profitability.
✅ What You’ll Learn:
- What is risk management in trading?
- Capital allocation techniques
- How to set proper stop-loss and position size
- Understanding Reward-to-Risk Ratio
- Mistakes to avoid in risk management
🧠 Understanding Risk Management
Risk management is not about avoiding risk altogether — it’s about managing it smartly. Even the best strategy will fail without proper risk controls. Successful traders control losses while letting winners grow.
💼 Capital Allocation Techniques:
1. The 2% Rule:
Never risk more than 2% of your total capital on a single trade.
🔹 Example: If your capital is ₹1,00,000, your maximum risk per trade = ₹2,000.
2. Portfolio Diversification:
Avoid putting all capital into one asset or sector. Spread risk across 4–5 themes or instruments.
3. Core-Satellite Approach:
Keep 70–80% in stable trades/investments (core) and 20–30% in high-risk/high-reward setups (satellite).
📊 Reward-to-Risk Ratio (RRR)
RRR helps you determine if a trade is worth taking.
Example:
- Risk = ₹20
- Potential Reward = ₹60
- RRR = 1:3 (Excellent Trade)
💡 Always target minimum 1:2 RRR in intraday/swing trades.
📉 Setting Stop-Loss and Position Size
🛑 How to Set Stop-Loss:
- Based on volatility or previous support/resistance levels.
- Never place SL too close or too wide.
- Use ATR (Average True Range) to calculate ideal SL.
📏 Position Sizing Formula:
mathematicaCopyEditPosition Size = (Account Risk % × Total Capital) / (Entry Price – Stop Loss)
Example:
- Capital: ₹1,00,000
- Risk per trade: 2% = ₹2,000
- Entry: ₹500, SL: ₹480
- Quantity: ₹2,000 / ₹20 = 100 shares
⚠️ Common Risk Management Mistakes
- Ignoring stop-loss and averaging down blindly
- Overleveraging in F&O
- Risking more on a “sure-shot” setup
- Not adjusting size based on volatility
- No risk plan for gap-downs or news-based volatility
🧩 Risk Management in Different Trading Styles:
| Trading Style | Risk Profile | SL Discipline | Leverage |
|---|---|---|---|
| Intraday | High | Very tight | Low |
| Swing | Medium | Defined via chart | Moderate |
| Positional | Medium-Low | Wide SL | Low |
| Options | High | Time + Price SL | Medium-High |
💬 CapitalKeeper Tip:
“Risk management is the backbone of consistency in trading. A small leak can sink a big ship. Protect your capital like it’s your business inventory.”
🔐 Bonus Tools for Risk Management:
- Trading Journals (Excel/Apps)
- ATR Indicator
- Position Size Calculators
- Volatility scanners
📈 Practice Task:
Use your previous 5 trades and calculate:
- Risk per trade
- RRR
- Position sizing accuracy
📌 For daily trade setups, technical learning, and smart investing tips, stay tuned to CapitalKeeper.in
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