Risk4 min read
Top 5 Risk Management Rules Every Trader Must Follow
Risk management is the foundation of successful trading. These five rules keep you in the game.
Risk management
Drawdownpeak se kitna neeche gaya account
The fall in your trading account from its highest point to a later low, measured in rupees or percent, showing how much pain a strategy inflicts.
Drawdown is how far your account has fallen from its peak. If your capital grew to ₹1,20,000 and then dropped to ₹96,000, the drawdown is ₹24,000, or 20%. Maximum drawdown is the worst such fall over a period and is one of the most important numbers in any backtest or trading record. Drawdowns are hard to recover from because the maths is uneven: after a 20% loss you need a 25% gain to get back to even; after a 50% loss you need 100%. This is why professionals cap risk per trade at a small percentage of capital. Drawdowns also test psychology; most traders abandon a sound plan in the middle of a drawdown and then miss the recovery. Know your strategy's historical maximum drawdown, expect the real one to be worse, and size positions so that you can survive it.
Related terms
Lessons that use this term
VideoRisk7 min read
What is margin in the share market? Intraday, delivery and F&O margins explained
Margin is the money your broker blocks before it lets you trade. How much depends on whether you buy for delivery, trade intraday or take a futures or options position.
VideoRisk7 min read
Leverage and spread, in plain language
Leverage makes a position bigger than your cash. The spread is the gap between the buy and sell price. One multiplies your results, the other quietly charges you on every trade.