Decide on limits for position sizes
It's important to decide how much of your capital you're willing to risk on each trade and position size plays a key role in this decision. Some traders prefer to risk no more than 1-2% of their total capital per trade. By managing your position size and keeping your risk relatively low, you could limit potential losses while still giving yourself the opportunity to make profits when trades go well.
Use stop-loss orders to limit losses
A stop-loss order could help to protect you from bigger losses by automatically closing your position if the market drops to a level you've set. By choosing a stop-loss level that fits your risk tolerance, you can limit potential losses when the market moves against you. For extra protection, a guaranteed stop-loss order ensures your position is closed at the exact price you've chosen, even in fast or volatile market conditions, preventing slippage. Keep in mind, though, that guaranteed stops incur a small premium if triggered.
Set price alerts to stay informed
Price alerts are a simple way to keep track of the market without having to watch it all the time. You can set alerts to notify you when an asset reaches a certain price, enabling you to act at the right moment – whether it's to lock in profits or limit potential losses.
Set a clear risk-reward ratio
The risk-reward ratio helps you weigh the potential profits against the potential losses. For example, a 1:2 ratio means you're willing to risk £1 to make £2. Setting this ratio in advance could be helpful in ensuring that the gains from successful trades will make up for your losses in the long run.
Spread your risk by diversifying
Diversification involves spreading your trades across different assets, markets or sectors. By allocating your capital to more than one option or opportunity, you can reduce the impact of a single loss on your overall portfolio, helping to protect your capital in the long run.
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