How to manage risk for intraday traders?

manage risk for intraday traders

[fusion_builder_container background_color=”” background_image=”” background_parallax=”none” enable_mobile=”no” parallax_speed=”0.3″ background_repeat=”no-repeat” background_position=”left top” video_url=”” video_aspect_ratio=”16:9″ video_webm=”” video_mp4=”” video_ogv=”” video_preview_image=”” overlay_color=”” overlay_opacity=”0.5″ video_mute=”yes” video_loop=”yes” fade=”no” border_size=”0px” border_color=”” border_style=”” padding_top=”20″ padding_bottom=”20″ padding_left=”” padding_right=”” hundred_percent=”no” equal_height_columns=”no” hide_on_mobile=”no” menu_anchor=”” class=”” id=””][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”][fusion_title size=”1″ content_align=”left” style_type=”default” sep_color=”” margin_top=”” margin_bottom=”” class=”” id=””]How to manage risk for intraday traders?[/fusion_title][fusion_text]

Did you know that 90% of intraday traders lose money in trading? Among this majority of traders fail to make money in the stock market as they are poor at managing risk and eventually lose their money by making some silly decisions. In this blog I have tried to highlight some of the key points which will help you in managing risk in intraday trading. Let’s jump into the topic.

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1. Place stop-loss correctly.


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How to identify the appropriate stoploss levels

  • Trading with the help of keeping appropriate stop-loss can be considered as an  effective shield against losing money in the markets.
  • For placing stop loss it is very important to know the technical support and resistance levels. Meanwhile we have to consider an daily  average range of volatility. Usually it is 1%.
  • To know more in detail about placing stop-loss read this blog.

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How to place stoploss orders

  • It is very important to know how to place a stop-loss order.
  • The success of placing correct stop-loss lies in setting the correct trigger and limit price. It helps to reduce slippages while execution the trades
  • The Difference between the triggering price and limit price should be decided by considering the expected price volatility at the stop-loss level

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Placing stop-loss can be an important factor in managing risk for intraday traders as it can help in minimizing the losses. Further we will look at some of trading habits which an intraday traders needs to correct if he needs to succeed in intraday trading, these habits will help in managing risks better and help you be a successful stock trader.

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2. Never speculate on future events


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As an intraday trader, it is very important to take rational decisions based on analysis. Never speculate the market movement based on a future events or news. This can be highly risky trades. As a wise intraday trader you should always let the event happen or news break then you can take trading decision. For Example, Instead of creating new positions ahead of RBI policy announcement, we can take position only after the announcements. So that the volatility is low and trend can also be defined by tracking market.

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3. Avoid trading illiquid stocks.


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Illiquid stocks mean the stocks which have a very few numbers of buyers and sellers and sometimes no buyers and sellers at all. Illiquid stocks are sometimes highly volatile and they can be highly risky too. It is advisable to trade in the NIFTY50 companies for the intraday traders.

The worst thing to happen to a stock trader is, when he wants to sell a particular stock but he finds no buyer. Avoid illliquid stocks.

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4. Never forget to clear all your positions.


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The Intraday trading approcah is quite different from positional approch, hence it is advisible to close the intraday position by the same day. But Some time traders tend to hold / carry positions, which are not generally good for day traders

Especially, when creating a short position in Equity segment in NSE, an intraday trader should buy back the share by 3:30 PM to avoid the auction risk. If you fail to buy back before 3:30 PM then the exchange penalizes for the act.

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5. Never contradict market.


[/fusion_text][fusion_text]As an intraday trader you should never dare to contradict the markets, this can turn out to be high risky. This is a very logical step to minimize your risks. Following the market is the safest way to trade.

“Never swim against the tide.”

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6. Set appropriate risk reward ratio.


[/fusion_text][fusion_text]Stock market traders should always lay a trade plan before starting to trade. You should define the entry point, exit point and the stop-loss. The different between entry and exit points should be atleast  in the ratio of 1:1. Many trader do not set the risk:reward ratio and book smaller amount of profits. Eventually when they lose money in a trade then they lose all their profits after a single trade this risk can be eliminated by setting the right risk:reward ratio.[/fusion_text][fusion_text]

7. Avoid creating too many positions.


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Many intraday traders end up creating too many positions after losing one or two trades, the reason? To cover up the losses. This should be avoided strictly. While trading you must keep your emotion balance intact. This can be of great risk and you end up in making even more losses, so stay aware from this practice.

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To conclude

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Managing risk is the key to success in intraday trading. You must always lay a good trade plan and stick to it at all times. Setting the right stop-loss and risk:reward ratio can be crucial in determining how much you make in stock trading. EQSIS provides professional training in stock trading and analysis for beginners and traders and helps them to become a successful intraday and positional traders.

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Article Info

Published Date: October 18, 2016
Author: Valarmurugan

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