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
Practising a strategy with simulated money, recording entries and exits at real market prices, to learn the process before risking capital.
Paper trading means placing trades without real money, either on a simulator or literally on paper, at the actual prices the market shows. You record every entry, stop loss, target and exit as if it were real. It is how you learn the mechanics of order types, lot sizes and margins, and how you test a strategy in forward time without paying for the education in losses. Suppose you paper trade Nifty options for a month, taking every signal from your rules; the log shows whether the rules make sense and whether you can follow them. Its limitation is that nothing is at stake, so the fear and greed that wreck real trading do not appear. This is why the step after paper trading is very small real size, not full size. If you cannot make paper trades work, real money will not fix that.
Risk management is the foundation of successful trading. These five rules keep you in the game.
VideoMargin 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.
VideoLeverage 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.