In my previous article “Trading is easy, isn’t it? [20 Nov 16] (Part 1) click HERE”, I have discussed the importance of one’s psychology in trading. However, I have only given a general outline on risk management and trading system which are also very important topics. In this article, I will elaborate on risk management compiled from various trading books and will add in my thoughts under “–>”.

Risk management – What it ACTUALLY means…

Risk management is a set of pre-defined guidelines which serious traders adhere so as to survive in the market over the long term. Risk management enables a trader to have a comfortable and known exposure to risk. It includes rules that define exit points, maximum loss per trade, maximum exposure and other key variables that affect your capital allocation.

Based on various statistics, risk management includes several aspects, viz. position sizing; predetermined stop ...