InvestorQ : How do I manage my risks in intraday trading?
Bhavika Nehru made post

How do I manage my risks in intraday trading?

Bhavika Nehru answered.
3 years ago

There is a popular saying in intraday trading that you take care of the risks and the returns will take care on its own. You don’t target returns in intraday trading but you targets your limits of risk. The key to consistent performance in intraday trading is managing your risk. Here are 3 ways you can manage your risk effectively

Set clear loss limits when you trade intraday and we are here referring to loss limits at multiple levels. These losses need to be set at various levels. For example, each trade should have a stop loss and that needs to be strictly adhered to. Secondly, there should be daily loss limits based on what you can afford to lose in a day. When that loss is breached the trader must have the discipline to shut the terminal and sit outside even if you see mouth watering opportunities in the market. Lastly, you need to set capital loss limits at which point you must go back to the drawing board and rethink you intraday trading strategy. When you lose, say, 40% of your capital in the first 1 month then it means that your entire approach or strategy is wrong. It is time to get back to the drawing board.

One of the ways of managing risk is through discipline. The intraday trader must adhere to the highest standards of discipline with respect to stop losses, trading levels, types of orders, profit booking levels etc. That is the intraday trader’s best insurance against market volatility.

One of the best risk management techniques in intraday trading is to ensure that trades are monitored in real time based on actual losses and MTM losses. Set triggers and use it against your live Excel updates. Bloomberg can help you do that. Also, positions that are open must be monitored for technical charts, momentum shifts, news flows and any corporate announcements. Vigilance is a good way to manage risk. After all, eternal vigilance is the price of trading happiness.