Being in the financial markets and operating with many volatilities, that is, with constantly changing prices, requires we have an extremely good risk management if we want to remain in the markets.
I believe that out of the four rules that one should follow to become an excellent trader, this is the most important of all.
When it comes to risk management, you must be aware of how far you are willing to risk in a trade. Depending on an expectation, an input signal that the graphics provide, depending on each of the issues that make trading. If one is not clear about how they want to manage the risk that this operation brings, that entry into the market has a problem.
And that problem will indicate a subsequent loss of money and consequently loss of capital. If this is repetitive and constant in each operation, it will cause the operator’s account to move towards total destruction. This, of course, would happen if they fail to establish a pattern with which he can consciously manage the risk of what he is doing in the market.
One of the issues that I ponder the most, is to determine how much I am willing to lose in this operation before entering a trade. In the examples that I give later, you will see that in all cases I made them numerical so that the concept of how much I’m willing to risk is properly understood.
One of the rules that I’ve learned over the years is that before opening the entrance to an operation, it is necessary to be clear where the output or profit objective of this execution is and where the loss stop will be if the trade goes against my initial intention.
Without this well established before entering the market, the result would be an operation without discipline. Therefore, away from the methodology and with risk to a loss greater than originally expected.