How to Manage Risk
You wake up one morning, look at your performance and realize that, in the past four days, your strategy is not working to your advantage. If you are confronted with stagnating or eroding market conditions, it might be time to consider adopting a different strategy. For example you can change your buy (long) strategy to an hybrid 'long / short sell' or a purely 'short-sell' strategy if the market is on a down trend.
What is an hybrid strategy?
An hybrid strategy takes advantage of mixed markets, buying (up) stocks with positive attributes and short-selling (put) stocks with negative attributes. This strategy can prove to be a more appropriate play in a mixed or down market. This strategy requires a margin account from your broker.
What is a short-sell strategy?
A short-sell strategy takes advantage of down markets, shorting (put) stocks means that you are betting that the stocks will go down in price. This strategy can prove to be a more appropriate play in a down market but it requires a margin account from you broker.
- Another way to mitigate risk is to put a 'Stop Loss' with a tighter percentage value on your strategy. Doing so will instruct the trading engine to drop stocks when they reach a pre-determined value and preserve your investment.
- Adjust your 'Profit Taking Target' to a value that permits taking profits in one day. This adjustment will enable taking profits more often and improve your financial performance.
- Spread your risk over several stocks. It will increase your odds of winning.
- Make sure to revisit your strategy from time to time to take advantage of changing conditions.
Last but not least, remember to test your strategy in simulation mode before you start trading with real money.