InvestorQ : How to handle the risk of losses in intraday trading? Is there some formula for that?
Bhavik Nehru made post

How to handle the risk of losses in intraday trading? Is there some formula for that?

Bhavik Nehru answered.
3 years ago

Losses must be seen at multiple levels. They occur at an overall capital level and also at stock level. They can be daily losses or weekly losses. We have not yet reached up to the trade specific stop loss here. First, you need to define how much of your capital you are willing to lose. That is your overall corpus risk. At that point, you must stop trading and get back to the drawing board. You have obviously messed up and it is time to find out why. You must also define how much maximum you are willing to lose in a day. If that loss occurs in the first one hour, then your terminal is shut for the rest of the day. Maintain that discipline at all costs. Also define your risk-reward which is the relationship between your stop loss and your profit target. 1.5:1 ratio is ridiculous, but 2.5:1 is acceptable.

The more important and practical thing is to define clear stop loss for each trade and adhere to it. Every intraday trade, whether on the long side or on the short side (it does not matter), must have an in-built stop loss accompanying it. You can set these stop losses around the supports and resistances or at the level you can afford. But don’t wait to input the stop loss after the trade is executed. Put it at the time of the trade itself; that is a better way. When the stop loss is triggered, you must just close your position. Don’t try to average your trade just because it goes against you. Loss is loss and you must respect your stop loss. Then don’t keep looking back at whether your stop decision was right or wrong.