What is your attitude toward risks?

Your attitude toward risks will affect how you trade. It is very important that your attitude toward risks be well-suited to your personal style as a trader. It is important to note that the longer you stay in the market, the higher the chances of risk becomes. With this being said, the trading approach which keeps you in the market for the longest amount of time is said to be the riskiest. This is why it is crucial to determine how you react toward risks. Are you a risk-taker, or are you risk averse?

Over-all, what is the risk in the market?

It is imperative that you make your mind up regarding the maximum amount of capital you are willing to place at risk at any given one time. You have to be prepared for the worst case scenarios. If the market crashes again, just like during 9/11, a catastrophic loss could come from having a very big percentage of your equity in the market. Most traders choose to just risk 1% on any one trade. This is while having a maximum exposure of 5% in total in all open trades. It is the lesser evil since even if you will still be losing the 5%, it will not be as horrific as losing way more than that.

How do you control Sector Risk exposure?

To control the sector risk, you have to limit the number of open positions in one sector.

How will you deal with Broker and Hardware Risk?

If your broker folds and you have no way of closing your open positions, what will you do? Suppose your PC or mobile device crashes and you need to take action on your position, what will you do? As a trader, you have to come up with possible ways to resolve these kinds of random problems when they suddenly arise. This is why you should put this in your Trading Battle Plan. It is never enough to just have a Plan A. There should always be a Plan B, C, D, and so on.

What is the Strategy Risk?

Always remember that the markets are ever-changing. A tried and tested trading strategy of yours may have been profitable last year or even last month, but now, there is always a possibility that your strategy may be disproven. What you can do in the event your trading strategy seems to have stopped working already is to measure the largest % drawdown on each trading strategy being used. After getting the % drawdown, multiply it by a factor of 1.5 to 2. Once you get the answer, check If the drawdown goes over this figure. If this occurs, STOP using the trading strategy!

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