1. Utilise Stop-Loss Orders:

Mitigate potential losses by setting stop-loss orders before entering trades. Determine your acceptable risk level before entering a trade and let stop-loss orders safeguard your investments against adverse market movements. ALWAYS use a Stop-Loss and put it in place at the same time as opening your trades. 

2. Embrace Portfolio Diversification:

Avoid putting all your capital into a single trade or asset. Diversify your portfolio across different instruments, sectors, or asset classes to spread risk and minimise the impact of adverse market movements. Diversification helps cushion the impact of market fluctuations on your overall portfolio. David Bowden, Founder of Safety in the Market suggests that you should trade a Stock, a Stock Index, a Currency and a Commodity. 

3. Implement Proper Position Sizing:

Determine the appropriate position size for each trade based on your risk tolerance, account size, and the size of your stop-loss order. Avoid risking more than a small percentage of your capital on any single trade. At Safety in the Market, we suggest risking no more than 5% of your account on any one trade, and no more than 2% when you are starting out and learning to trade, while you are building  your confidence as a trader.

4. Assess Reward to Risk Ratios:

Assess the potential reward relative to the risk of each trade. Aim for trades with a favourable reward to risk ratio, where the potential reward outweighs the potential risk. This ensures that profitable trades can offset losses from losing trades over time.  We teach our students, even at the beginner level in our Active Trader Program, to focus on taking only 10:1 (or better) Reward to Risk Ratio Trades. Yes it can be done and it’s probably easier than you think!

5. Develop a Comprehensive Risk Management Plan:

Craft a robust plan outlining your trading goals, risk tolerance, and strategies for managing risk. Stick to your plan and avoid deviating from it, even in the face of market volatility or emotional impulses. In our Active Trader Program Online Training, we go a step further and teach our students how to put together a ‘Business Plan’ for your trading and provide them with a template to use if they wish. Risk Management is only a part of the overall picture required for trading success.  David Bowden, the Founder of Safety in the Market, says “Trading must be run as a business” and attributes his success in trading to the fact that he ran his trading like a business, not just a hobby.

6. Stay Informed and Conduct Thorough Analysis:

Stay informed about market news, economic indicators, and other factors that could impact your trades. Conduct thorough research and analysis before entering any trade to minimise the likelihood of unexpected losses.

7. Continuously Monitor Trades:

Regularly review and adjust stop-loss orders or exit strategies as market conditions evolve. Oftentimes this needs to be done on a daily basis, or more – but you still need to give the market room to breathe and make its fluctuations. Being organised with your approach and proactive monitoring helps mitigate potential losses and maximise profits. David Bowden tells us that in trading “ .”  The markets can often make a price move in a matter of seconds! In the fast-paced world of stock market trading, the ability to make quick decisions can be a powerful asset.

8. Maintain Emotional Discipline:

Emotions like fear and greed can cloud judgement and lead to impulsive decisions. Stay disciplined and stick to your risk management plan to avoid costly mistakes. There is an excellent book we recommend here at Safety in the Market called ‘The Investor’s Quotient: The Psychology of Successful Investing in Commodities & Stocks (Get it here on Amazon) Set your profit targets at the outset and be prepared to close your trade and walk away when the market reaches this level. You don’t need to hold on and extract every last cent from the market – the more time you are in the market, the more chance you have of the market moving against you. Like the old adage says “A bird in the hand is worth two in the bush” and remember your whole job as a trader is to make money, that’s it! By incorporating these risk management strategies into your trading approach, you can navigate the markets with confidence and safeguard your capital for long-term success. 

Having an effective Trading Plan in place can help you mitigate risk.

Don’t already have one or maybe yours needs a tweak? Here’s a FREE resource we’ve put together that will help – Trading Plan Tune Up

For in-depth guidance on mastering risk management and enhancing your trading skills, explore our comprehensive Active Trader Program. 

All of our students start out with the Active Trader Program – because when you have the basics right, you have a strong foundation on which to grow your skills as a trader.

For a limited time, gain access to 3 months of FREE online coaching to accelerate your trading journey. As a student, you’ll also benefit from ongoing online support through our dedicated ‘Trading Tutors’ Service at no extra cost . Learn more and enrol today.