What are the Risk management Techniques for Day traders?
As we all know, risk is involved in any business. Risk management is an exceptionally imperative part of becoming an active trader. The trader has to abide by a set of rules and strategy which will help in counterbalance losses and keeping the investments safe. While trading on Indian stock market indexes like BSE India, NSE India, it is crucial that a solid planning and strategy is set in place before trading. While trading in Sensex, the following risk management techniques will be useful.
1. Planning the trade
It is important to plan the day’s trade in advance to have clearness in mind while trading.
Planning the points to buy and sell will help in maximizing profits and reducing loss. Make a note of profit points and stop loss points during the day to simplify yourself of last minute speculations.
Profit points are the points where traders usually want to sell the stock. These are usually the part of Nifty trends which are high points of the day’s trading of stocks when it reaches the resistance level. Traders like to sell it at this point before the stock starts its downward trend.
Stop loss points are those points of Nifty trends where trader wants to sell stocks at a lower rate taking a loss but reducing the overall loss. This usually happens when the trade is not going trader’s way. It helps in reducing the overall loss but exiting at a time when the loss is minimum.
2. Calculating the expected return
It provides a organized and logical way to compare all the trades that are there and choose the ones that are the most profitable.
3. Diversification and hedging3. Diversification and hedging
SGX nifty gives an opportunity of having stakes in a diverse portfolio of trades that allow traders to minimize the risk of losing money when one of the tradesfalls. It is necessary creating more opportunity rather than diffusing risk.
Hedging is another alternative to safeguard your investment by taking a long position on one of your stocks and a short position on the stocks differing to these stocks thus giving you the liberty to gain profits through both of them.