Strategies
In this section I'm writing about different strategies for trading and trade management. See how to improve trading results by applying simple techniques and implementing a pro approach.
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Risk management in trading
There are hundreds of articles on risk management in trading on the internet that cover various aspects of it. I’m not going to repack the content that is available out there but focus on my view on risk in trading and my strategies for risk and exposure management. To begin with, let’s define what risk in trading actually is. For me the definition would be as follows: Risk is the probability of losing the capital. So, risk management involves working with probabilities and undertaking measures to reduce the probability of losing the capital. When considering risk in trading, we can speak of probabilities of losing the capital exposed during…
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Hedging in forex
What is hedging? Hedging is a risk management strategy. It allows us to limit drawdown on losing trades as well to protect open positions in an event of rapid price fluctuations. Hedging a position can be nothing more than opening a second trade of the same value, on the same currency pair, but in the opposite direction (direct hedging). For example, if one wants to hedge a short position, opening a long position is required, and vice-versa. Once the opposite position is open, the losing trade stops generating losses, since the loss on one trade is offset by profit on the other one. This is the simplest hedging strategy forex…
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Risk management in trading
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When not to trade – Situations which cause trading errors and mistakes
This article covers the situations which are not related to the market or the system, and yet affect trading. These are the potential contexts in which you shouldn’t really trade, because you will most likely make a trading error and lose money. It is part of my strategy series, for both new as well as more experienced traders. A strategy for trades and trading activities management in case of various situations that may occur in life should be a part of any trading plan. Or at least you should have a general protocol on what to do in different situations, to avoid trading under emotions and making mistakes. Some of…
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Risk management in trading
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System backtesting
Trading can be a complex and challenging endeavor, with all the variables and factors one has to consider when making trading decisions. Developing a system that can reliably generate profitable trades over time is the most crucial aspect of it. When working on a system, it is essential to engage in backtesting (testing a trading system using real market historical data) to evaluate its effectiveness and potential profitability. System backtesting is very important for various reasons. A day or two spent on backtesting can give preliminary knowledge of whether the system is profitable or not. It allows to check the effectiveness of a system without risking any real money. Backtesting…
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Risk management in trading