Let's talk about risk baby

in #investing5 years ago

I cannot tell you what risks you should and should not be taking; everyone has their own views and comfort zones when it comes to risk. What I can do, is tell you how I approach and manage my own risks.

Day trading and using products such as CFD's is one of the most risky forms of investing that I actively engage in. Whilst using these products I can actively dampen down the risk factor by using stop loss and making sure I am fully engaged with my trades. For me, the best way to make the least risky decision is to merge your own calculations with those of professional technical analysis, then firm that decision with clear fundamental news that drives the direction you are trading. Reuters news is my personal top source along with dailyfx. Every factor that favours my direction of trade means the risks are decreasing. I never trade purely on someone else's technical analysis or let my trades go in the hands of algorithms; they are both techniques that work but it is simply out of my comfort zone therefore I deem it to be high risk.

Having covered CFD's on a basic level, we can move on to the bigger picture. The greatest form of risk management for me is portfolio diversity, it's a huge topic for investors and it is something I follow every single move.

For example, 20% of my overall portfolio sits in a CFD trading account, the other 80% is spread between stocks and shares ISA, physical metals and cryptocurrency. This "system" has saved me so many times and I might not be making large profits every day but what I AM doing is minimizing my losses. Those who read my blog may well know, I was a sucker to a bad Forex trade recently, what I didn't mention was the above system. At the same time my trade went against me, larger gains were happening elsewhere due to the sudden surge in cryptocurrencies, as much as it was coincidental that it happened, it is the fact we have that risk management system in place that matters.

To summarise on my slightly brief post which I apologise for, the best way I manage my risks is by diversifying my products, even on my trading account I may have one uncertain trade that offers a nice profit but at the same time have two trades active that carry minimal risks; the same applies to cryptocurrency, I will not throw all my allocated funds in 1 cryptocurrency. Then we move another level out and have part of our money in other investing accounts, we keep doing this until we are spread well enough to cover our risks and not too far that it becomes unmanageable.

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