Risk Control by Max loss/ day or per week
Risk control is extremely important for we traders. I have received a pm from a trader and after taking his permission to post in my thread and my answer is posted below as many will be facing the same problems and will find it useful....names are deleted for confidentiality.
His pm :
Hi ST dada ,
i am day trader , cum jobber(scalper)since 2010 . i have good track record , i am full time trader , work with prop. desk . earn some money every month also .but problem is that no growth cause of my emotion. i cant stop when i am in loss .
for example :- i set my loss limit per day is 5k , max to max. whenever my loss limit cross , i want to stop my trading . but i cant .
this is my problem , i try many times and many ways to stop myself whenever my loss limit cross, but every time i fail .
now condition is that my earning is around 1 lakh per month in that company share is 40 % and remaining is mine it 60k .
my loss days are few in month its around 4-6 avrage per month , but these 4-6 days my loss is around 60-80k avrage ,many times it cross 1 lakh also .
it means my loss every month 60-80k which is big , i think , if i minimise it to 10-20k then my profit will be double every month ,but cant .
dada , i understand everything but cant implement it to practicle .please
dada , i try to improve myself but not improvement to minimise my loss , i know if i control my loss 5-10k per day then i am successful . but last 4 yr these struggle continue , cant stop myself .
dada , you are senior then please advice me , i hope you will guide me properly . please dada
thank you .
My Reply to his PM
Hello *******,
This is a usual problem when trade entry and riskcontrol both functions rests with a trader. In many hedgefunds abroad these functions are distinctly separate and a trader once has set the stoploss cannot alter it....the trade risk control is then taken over by a different department.
You must have strict stoploss and set predefined limits on daily/weekly and monthly losses else trading will always be three steps forward and three ( possibly four ) steps backwards and you will never make progress. So set the loss limit to 5 K ,10 K or 15 K whatever and once that is achieved, close all positions and shut your trading terminal off for rest of the day...it is absolutely essential for capital building that losses are controlled very strictly.After closing the terminal in many hedgefunds the traders are given lowly jobs of serving tea,coffee to other traders,picking up the empty cups/glasses, finishing pending admin work for rest of the day/week etc...so that all try not to get into that situation.Independent traders can shut the terminals and go out for outing /lunch with family, go for movie....but if that is not possible in a job...stop trading for that day.
So be ruthless with limits of max loss once set.
All the very best for your success...
Smart_trade
