Risk management
Risk management represents a crucial element of the process of investment. It focuses on dynamic stability and profit growth over time. Management in this area means defining and following a set of rules regarding the amount of money to be invested, acceptable risk level, goals to be set and choosing the market for activity.
Proper risk management is critical for investment success.
The key factors of risk management are:
- market exposure limits - while setting the limits traders should take into consideration the market volatility, interest rates correlations and market potential.
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cutting losses - a trader should define and follow the closing losing positions rule which should be set before you enter the market (for instance 5% loss is the most you can accept).
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using stop loss orders to prevent greater losses.
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closing positions on weekend problem - this should define the attitude of the trader towards the weekend price gaps problem.
