While the glitz and glamour of trading are attractive, if we are having poor risk management skills, and fail to calculate the risk in each trade, it can accumulate and erase your trading account in no time.
The chess game of trading requires a good defence.
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Top-level managers and financial engineers must work in tandem to develop and execute a strong risk-management strategy. The three basic premises for this corporate strategy are:
Risk no more than 1% of the trading account on each stock trade.
Let’s say that I am trading a $100,000 account. I will risk only 1% of my account, or $1,000. If I enter the stock at 100 and the 50-day moving average is at 95, that means that my risk is 5 points on the stock (100-95). ...
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