Volatility and Its Impact on Position Sizing
Managing position size based on volatility is one of the most important elements of risk management. When volatility is high, position size should be reduced to decrease risk exposure, and when volatility is low, it may be appropriate to increase position size. This approach enhances the foundations of good capital management and prevents exposure to significant losses during large market movements.
Using the Philosophy of “Cutting Losses and Letting Profits Run”
One of the most important rules of risk management is knowing when to exit the market. Traders should set strict stop-loss points and adhere to them to prevent losses from escalating. Conversely, profits should be allowed to grow, and traders should avoid exiting profitable trades too early, leading to good opportunity investment and maximizing returns.
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