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Market Risk

Market risk – The market is an area or arena in which commercial dealings are conducted, risk Is a situation involving exposure to danger?.

There are many different types of market risk below is list of a few examples. All of them carry the same risk if any of the markets experience a fall we expose ourselves to the risk.

  • Housing market risk
  • Investing market risk
  • Equity Market risk
  • Commodity Market Risk

I will explain below the various ways of mitigating the risk and controlling your account whilst day trading.

Market Risk
Market Risk

Market Risk management & Ratios

Firstly with any trading strategy especially day trading with leveraged CFD positions It’s necessary to protect your capital against market risks.

Yes, you should have already decided and allocated some fund you dont mind loosing because its going to happen.

I don’t have a magic ball there are no hard fast rule that suggests follow a specific indicator or system works its all about risk management if you require anymore information about trading I have created some lessons below.

Managing Risks

The only way you succeed as with any business in this world is to manage your risks, so, first of all, you would work out your risk.

For example, you owned a bakery you risk would be your product.

Make too much it goes to waste make you loose money, too little and you miss out on potential sales loose money.

The market risk I referrer to is the stock market as the example above you need to look after your capital keep it close don’t give it away or you will be back to square one.

Following the rules I have laid out here and within my day trading strategy you should be able to keep your afloat for a lot longer than i did when I first started.

The way I look at this is that if I was buying a £10,000 car which is a lot to some people but nothing to others say in 5 years time of owning this car you will loose £5000 maybe more that’s it poof gone never to be seen again.

But at least with trading, you stand a good chance of making money on that capital.

Market Risk Day Trading
Market Risk

Day Trading Market Risk Explanation

As with all of the market risk explanations the stock market is no different I use a rule of 6% of my account value thats what I found that works with my strategy.

It’s up to you and your own value on risk but it’s going to take almost 17 days and 51 losses to wipe your account out if you followed my strategies.

It’s not very often that I will trade 6% of my balance in one trade I usually trade 2% risk positions and only maybe only two positions a day three if I am on a good winning run.

Day Trading Risk Calculator

To work out you trade size risk and returns you need some of that maths you learnt I will give a few examples below.

Account balance £1,546.23 (my Balance ATM) then we put this into the calculator see images below.

  • Day trading risk calculator
  • Day Trading Risk Calculation
  • Day trading risk calculator

This gives you your daily risk £92.77 you can use this any which way you like but don’t go over it if you was to risk the lot on one trade I would suggest only using 5% to account for slippage. I divide this by three so £30.92 risk per trade.

I work this out everyday before I do anything else then I know my max position size and risk taken on every trade.

Using The Same Risk All-Day

I use this risk ratio all day, if I had two losses in the morning of -£60 my last position i have opened is -£30 risk but I close this position at +£140 it doesn’t clear my losses.

I could open another trade so one loss of £30 before I close down my laptop and wait until tomorrow.

Most of the time if I have a large profit call like the example above £140.

I would just monitor the market for the rest of the day probably not open another position.

Taking Risks
Grammarly Link

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