Risk management at the highest level
Risk management at the highest level

Allowing your fear of financial loss to keep you from pursuing new sources of income is never a good idea. Advanced risk management is just what you require to ensure that your investment remains as secure as possible.

Many traders are hesitant to invest because of the risks involved. Fear of losing prevents you from making any progress and, as a result, you return to the known safety of your previous method of generating money.

The risk management strategies can be found there. Their goal is to reduce risks while allowing enough flexibility to apply various trading strategies. Risk management allows you to lose less money and perhaps fully cover your failed agreements.

Many traders believe that establishing their Stop Loss and Take Profit levels is all they need for money management; nevertheless, if you want to make your money management strategy truly advanced, you must cover a wide range of topics. Let's have a look at the most important ones:

Money should be added to the winning positions.

As apparent as this advice may seem, it's often easy to overlook, especially if you're hoping for a price drop shortly. After all, no one wants to pay a premium price just to see it drop abruptly. Even so, it's still a better idea to put your money into transactions that are assured to make you a reasonable profit rather than ones that merely have a possibility to make you a large profit.

Be cautious of earnings reports.

Holding a position open through earnings releases or important economic events can put you in a risky situation where the volatility can derail your overall winning streak. Check the economic calendar ahead of time and set some reminders so you don't miss any essential days. It's always better to be safe than sorry.

Make a risk assessment ahead of time.

To do so, you must distinguish between active and passive risks.

The active risk ratio (alpha) is a time-based metric that compares an asset's performance to a benchmark. The passive risk ratio (beta) compares the volatility of an asset to a benchmark over time.

Here's how to figure them out:

Rp – [Rf + ß(Rm – Rf)] Alpha () = Rp – [Rf + ß(Rm – Rf)

Covariance (Re, Rm) / Variance = Beta (ß) (Rm)


Rp: Return percent of portfolio - the portfolio's return percent over the specified time period.

Rm: Return of the market — the benchmark's percent return over the given time.

Rf: Return on a risk-free trade — the percentage return on a low-risk investment.

Return on equity (ROE) is the percentage of a stock's value that has increased over time.

The alpha rate has a starting indicator of zero. The return percentage will be higher than the benchmark if you receive a positive result. A lesser return is indicated by a negative alpha rate. A greater beta rate corresponds to higher returns and higher risks, whereas a lower beta corresponds to lower returns and lower risks.

Diversify your investment portfolio.

Depending on your present goals and capabilities, it's critical that you diversify your assets and trading instruments in your portfolio. Maintain in mind, too, that you should keep a close eye on every asset you invest in, so choose as many as you can without losing focus.

Set price goals.

Knowing when to exit a position is just as crucial as knowing when to enter the market. One of the key risk management tactics is determining the desired price level to set your Stop Loss and Take Profit more carefully. Traders prefer to use the following indicators to properly tune it:

  • Support and Resistance
  • Moving Averages
  • Pivot Point
  • Average True Range

Trading always entails some level of risk. Still, with the right risk management measures in place, you can keep your losses to a bare minimum and recoup your losses with new covering positions.

Here's an additional checklist of rules for risk management - bring it with you; going it alone is perilous!

Risk management at the highest level
Risk management at the highest level