How To Mitigate Risks In The Share Market?

Posted by Traders Gurukul on May 22nd, 2021

Every trader wants to earn a good fortune by trading in the share market but it is imperative to be prepared for the worse whenever there is unexpected price volatility or fluctuation. There is a 50-50 probability of either of the two situations and hence, there is a risk involved to it. Since there is a risk, there is also a need to manage it. A wise trader will always try to understand the degree of risk he/she can undertake and formulate plans to minimize the consequences of the possible risk. As a trader, there are some simple tips that you can follow to mitigate the trading risks. Good stock market courses will always train you to manage your risk before anything else.

• Test your tolerance

Before entering into a trade, you should know the amount of risk you can tolerate if it goes the other way. You should fix the limit of loss and exit the trade by squaring the position if it reaches that loss. This happens more aggressively when you do intraday trading because there each second matters and you cannot hold the position for more than a stipulated time waiting for the trade to bounce back.

Generally, experts training in stock market courses suggest keeping 2-2.5% risk in intraday trading and 10-12% in the long-term positions. Once this risk is reached, then the position should be squared off without letting your emotions come in the way.

• Check how liquid is the stock

Traders should check the liquid nature of the stock to understand how instantly is the selling and buying of the stocks are possible. It is advisable to trade in high-volume stocks to be able to sell them instantly when needed.

• Pre-determine the buying price and stop-loss

Basis the trend and your research, pre-determine the entry-level and the stop loss to incur a limited loss. In case the entry-level price is not attained then do not buy an over-priced stock otherwise it can be a risky position for you. You can practice in demo virtual market software that is taught in stock market courses.

• Target your profit

The same analysis which suggests you of the entry-level will also suggest you about when to sell. Determine your target of the profit and put orders to the square of the position as soon as the determined profit is achieved. However, you might feel greedy to book even more profit if the market is moving as expected but don't let that greed come into play. It is always better to book the determined profit fully or partially.

• Follow trailing stop loss method

If you having profit in a particular trade then keep trailing the stop loss accordingly. The position will be automatically squared off at the put stop loss.

This helps you gain a decent profit even if the current price starts to fall. For instance, you purchase a share for INR 350/- and the initial stop loss predicted was 344/-. Later, the current price rises to 360/- then the stop loss should also become 354/-. This will enable you to still gain INR 4 per share even if it starts to fall.

There's no way to safeguard yourself from make a loss but the tips mentioned above can certainly help you to manage the risk for minimal losses.