The 4 Vedas to Managing Risk

Have you ever had a tough day trading? Do you look at your P&L at the end of the day, and wonder how you’ll get over such predicaments? Well, then that’s not just you, traders face such problems every other day in the Indian Stock Market. Without any given rules or courses of action to take to, we tend to get upswept by the dynamicity of the Stock Market Live. Here we present to you our four Vedas/Rules that have helped us and our students manage their risks.

Rule 1: Decide in advance the maximum loss for the day…

“Planning without action is futile…

Action without planning is fatal”

Trade with optimism in Stock Market, however, decide in advance the amount of loss that you will incur in any given day. This rule curtails any superfluous losses incurred in a day, once you reach a given limit of losses. Also, it’s necessary to establish such an amount before the market begins and no access to change it later. In fact, it is advisable to let someone else set this lock so that you can not trade after you’ve reached the limit even if you want to.

Rule 2: Put a limit to your position size…

“ Trade, but to satisfy your need.

Not your greed”

Keep in check the number of shares you purchase for a given trade in the Stock Market Today. Gut feeling is treacherous when it comes to trading; never increase your risk beyond your limits. Most of the time, it is our intuitions that lead us to losses. And that too, with a huge can really be ruinous. Listen to your intuitions, but never forget your limits. Stay updated with stock market news and world stock market to have the required exposure.

Rule 3: Restrict the number of your positions

“ Even the best of traders know their limits…”

We should always limit our focus on selected Stocks and not override the stock market basics. It is really difficult to keep a check on and study a humongous amount of shares at a time. Hence, we should limit the number of our positions to a minimum in stock market timings so that our primary focus is on personal growth.

Rule 4: Reduce your loss count

“It is O.K. to take a break today,

If you’re ready to come back stronger tomorrow”

What’s more important than our financial capital is our ability of judgement and our psychological capital. Rational decision making is necessary so that we do not put ourselves in stress. When we face losses incessantly in the equity market, we tend to lose our confidence and feel stressed. Not “every” day is “your” day; so if you’re facing losses continually, it is ok to take a day off and come back stronger than ever tomorrow.

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Shivam Aggarwal

ISM-Institute OF Delhi

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