Risk management is the single most important skill in trading. Without it, even the best strategy will eventually lead to significant losses.
The 1% Rule
Never risk more than 1-2% of your total trading capital on a single trade. If your account has ₹5,00,000, your maximum risk per trade should be ₹5,000-₹10,000.
Position Sizing
Calculate your position size based on the distance between your entry and stop-loss. This ensures consistent risk across all trades regardless of the stock price.
Stop-Loss Orders
Always place a stop-loss when entering a trade. Technical levels like support/resistance, moving averages, or ATR-based stops are effective methods.
Risk-Reward Ratio
Aim for a minimum 1:2 risk-reward ratio. This means for every ₹1 you risk, you should target ₹2 in profit. This allows you to be profitable even with a 40% win rate.
Diversification
Do not put all your capital into a single stock or sector. Spread your risk across different sectors and asset classes.
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