1. Always set a stop loss after opening a position.
Setting a stop loss is not only a means of risk control but also a reflection of trading discipline. It is recommended to clarify the stop loss point before opening a position to avoid emotional decision-making. Technical analysis tools (such as support levels, resistance levels, moving averages, etc.) can be used to determine reasonable stop loss positions.
Once the stop loss is set, do not adjust it casually unless there is a significant change in market conditions. Frequently moving the stop loss weakens its risk control effect.
2. The stop loss amount for each trial position opened.
A stop loss amount of 2% is a relatively conservative suggestion, suitable for beginners or risk-averse traders. For experienced traders, the stop loss ratio can be adjusted according to market volatility and the win rate of the trading strategy. For example, in highly volatile markets, the stop loss ratio may be relaxed but should not exceed 5% of total funds.
It is recommended to use the 'risk/reward ratio' to assess the rationality of each trade. Generally, the risk/reward ratio should be at least 1:2, meaning potential profits should be at least twice the stop loss.
3. Strict stop loss, unconditional exit if total funds lose 30%
The rule of exiting after a 30% total fund loss is a relatively strict risk control measure, suitable for conservative traders. For aggressive traders, it can be adjusted according to personal risk tolerance but should not exceed 50%.
After reaching a 30% total fund loss, it is advisable to pause trading, reflect on and adjust strategies, rather than immediately re-enter the market. You can review trading records to identify the reasons for losses and avoid making the same mistakes.
4. Handling after forgetting to set a stop loss.
Forgetting to set a stop loss is a major taboo in trading; it is advisable to use the automatic stop loss feature of the trading platform to avoid human oversight. If you do forget to set a stop loss, you should immediately close the position and not hold onto false hopes.
After closing a position, it is advisable to temporarily exit the market, calmly analyze market trends, and avoid emotional trading. You can set reminders or use risk control features of trading software to prevent similar situations from happening again.
5. Initial learning does not recommend increasing positions.
For beginners, fixed position trading helps cultivate discipline and risk control awareness. It is recommended to gradually try increasing position strategies only after achieving stable profits. When increasing positions, follow the 'pyramid adding' principle, which means decreasing the amount for each additional position to reduce risk.
The premise for increasing positions is that market trends meet expectations and profits have already been made. It is not advisable to increase positions to average down costs during losses, as this increases risk.
6. Other Suggestions for Capital Management
Diversification: Do not concentrate all funds on a single trading variety or market. By diversifying investments, you can reduce the impact of single market fluctuations on overall funds.
Regular Review: Conduct weekly or monthly reviews of trading records, analyze the reasons for profits and losses, and optimize trading strategies. By continuously learning and adjusting, enhance capital management capabilities.
Emotional Management: Capital management is not just a numbers game; emotional management is equally important. Avoid becoming overly confident during profitable trades or rushing to recover losses during downturns. Staying calm and rational is key to long-term profitability.
Capital Allocation: It is recommended to divide funds into multiple parts, one part for high-risk, high-return trades, and another part for low-risk, stable investments. Through reasonable capital allocation, you can pursue higher returns while controlling risks.
7. Tools and Techniques for Risk Management
Use stop loss and take profit orders: Automated tools can help you strictly implement stop loss and take profit strategies, avoiding emotional interference.
Value at Risk (VaR) Analysis: Through VaR analysis, you can assess the maximum loss you may face over a specific period, thus better controlling risk.
Position Calculator: Use a position calculator to automatically calculate the appropriate number of contracts to open based on stop loss levels and risk tolerance, avoiding overtrading.
8. Psychological Preparation and Long-Term Planning
Accepting Losses: Losses are part of trading and cannot be completely avoided. It is important to strictly manage funds to keep losses within an acceptable range.
Long-Term Perspective: Capital management is a long-term process; do not change strategies due to short-term profits and losses. Maintaining patience and discipline is essential for long-term survival and profit in the market.
Summary
Capital management is one of the keys to trading success. Through reasonable stop loss settings, risk control, position management, and emotional management, trading risks can be effectively reduced, enhancing the likelihood of long-term profitability. Traders are advised to develop a capital management strategy suitable for themselves based on their risk tolerance and trading experience and to strictly implement it.
