Steemit Crypto Academy | Season 3 Week 8 - Risk Management in Trading

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Trailing stop loss is a strategy that helps traders to lock their profit. While also protecting traders from losses that may occur during trades. Trailing stop loss is an order that is made by traders. During trades, if a stop loss is set, it can help traders to minimize loss and also help them to gain more profit.

Trailing stop loss is similar to Stop loss but the difference there is that trailing stop-loss moves when the price moves in the favor of the trader. For example, you are in a trade, trading with BTC/USD pair, you now set a trailing stop loss. If the price trend moves upward, the trailing will also move upward but if the price moves downward it does not move. Trailing stop loss can be set to work automatically with most tradings and brokers. While it can also be monitored and be changed manually by the trader.

Margin Call -

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A margin call can be defined as a call that is issued by a brokerage firm to warn or to inform the trader that their brokerage balance has dropped more than the balance that is supposed to be there. A trader that gets a margin call must quickly deposit cash or securities to avoid the brokerage in selling his/her position in the firm. A margin call is normally applied to those that borrow money to trade (is called margin trading) and there must be a certain percentage of an asset that must be in their account before the brokerage firm can borrow trader.

Risk Management

If we should talk about risk management in trading, risk management can be defined as the process in which traders manage, control risk, and at the same time turn risk into reward ratio.

In trading, there is no trading strategy a trader can use that can give a 100% answer. I.e it does not matter how perfect a trader is, if the trader does not have good risk management techniques, he or she should be ready to sign for a huge loss.

When trading, a trader must put at the back of his/her mind how many percentages of his capital he/she is ready to lose. Because a trader must plan to lose, as he is planning to gain more profit. The knowledge of this alone can help to determine and minimize tension or any emotional disorder.

As I said earlier, that a trader must put the amount he is ready or willing to lose at the back of his mind. According to the rule of trading. As we know not every trade is profitable. You win some, you lose some. A Trader must know the percentage he/she is willing to lose.

In trading, most traders are willing to lose 1% of their trading capital. While some that can take risks will be willing to lose 2% of their capital. According to the rule of 1%, if traders open a trade with $20,000, he is must be willing to not more than $200 of their capital. While those that can take the risk for 2% will be willing not to lose more than $400 of their $20,000 capital. The 1% percentage must be strictly followed with other techniques that can help us to manage our trading risk very well.

Risk Management Techniques

I will be listing and explaining some risk management techniques that can be of help to traders to manage our trading risk effectively.

• Planning your trades -

Planning is very important in every business. Is just like going for a war, Planning can distinguish between a success and a failure. In trading, it is very important to plan trades, Because it is the plan you will establish when you start trading, and not having a better understanding of what you are doing or what you are about to do can make one exist the market with a very huge loss or lose the entire capital. The

• Take note of the 1% rule -

Following the 1% rule is very important. It can help traders to manage risks that may occur during trades. And for those that can afford 2%, traders like this always have a huge amount of capital in their trading account. But for those that have $10,000, it is advisable not to risk more than 1% of your capital which is $100. One percent rule is most used by day traders.

• Setting stop loss and take profit -

Stop loss is said to be the price at which traders sell stock or assets and take loss in a trade. This mostly happens when a trade does not go in the favor of the trader. So, it is very important to set stop loss to minimize loss.

On the other hand, take profit order can be said to be a price in which a trader sells assets or stock and take profit on a trade. This mostly happens when the trader sees the trends in a way that, leaving the assets without setting take profit can result in a huge loss. So, traders set stop loss and take profit in advance and will automatically fulfill when it reaches the pre-specified price.

Use a Moving averages trading strategy on any of the crypto trading charts to demonstrate your understanding of Risk management.

I will be demonstrating my know about moving average. Firstly, I will explain how we can add moving average to our trading chart on tradingview.

Firstly, all we need to do is to visit the tradingview site here. It will display to us the main page of tradingview as we can see below.

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After that, at the upper part of the homepage as you can see above, click on chart. It will display a chart page. See below.

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On this page, click on the indicator, as you can see in a role at the upper part of the chart, in a line along with some chart features. It will now pop up a page where you can select the choice of your indicator.

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You can type the name of the indicator on the search engine, for you to locate it speedily. I search for Moving Average and I Clicked on it as you can see below. Once you clicked on it, it will display the moving average even before you close the indicator box.

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After when I have added it to my chart, I click on MA on the left side of the chart page to see its setting. I clicked on setting, it now displays what you can see in the above image.

As we can see in the above image, we set our indicator according to our choice. We can change the input, the style, and the visibility.

To explain my understanding of risk management, I will be using two moving averages. As you can see below.

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Moving average is a common indicator that is used by traders to determine the good time to enter market and when to exist market. Moving average is most commonly used to identify trends direction. A trader with the understanding of moving average indicator will know when to enter or exit the market according to the line direction.

In the above image, I used two moving averages. I set one (1) length to 200MA, while I set the second to 25MA. I set that on tradingview by clicking on MA, it shows me its features. So, I clicked on the setting icon. Under setting is where I changed the length, under input. You can see the process in my explanation which I displayed earlier, in the images.

The Moving average that I set at 200 lengths and trend below 25MA length, signify an uptrend. A trader with an understanding of moving average indicator will know the point where 200MA meets 25MA and 200MA, now trend below 25MA indicate an entry point, which can also be called a buy signal. While the point which 200MA crosses 25MA, and 200MA now trend above 25MA, signifies exist point which can also be called selling point. We can see the practical part of my explanation in the above image.

In conclusion, risk management in trading is the process of managing, identifying, accessing, and controlling risk or threats which may occur during trades. Applying risk management in trading is very important to minimize losses and maximize profit.

I want to use this medium to appreciate my amiable lecture for this wonderful topic, prof @yahan2on. I enjoyed the class and I look forward to receive more lectures from you, sir. Thanks for reading through my homework.