Intraday trading is a riskier process than the other swing or long-term trading processes. In intraday trading, you need to take extra precautions and necessary steps so that you will be able to mitigate the risks associated with intraday trading says Peter DiCaprio. Compared to other trading platforms, you cannot make mistakes in intraday trading. Even though you cannot avoid losses entirely, you can develop a trading framework so that you can decrease the impact of losses on your trading plan foundation.
However, if you make a mistake while managing risks in intraday trading, you will face severe consequences. The loss is inevitable. But proper risk management plans will prevent you from facing extreme financial losses that would damage your entire capital or revenue.
Here are the top 3 risk management factors you should consider in intraday trading.
You Need to Plan Your Trades – Peter DiCaprio
Before entering the intraday trading market and setting up your targets and losses, you need to develop proper planning. However, make sure the plan you create is not virtual. Instead, write it on a piece of paper. You need to decide numerous things such as which stocks are best for trading, how much you can afford to lose or invest, how many risks you need to face while trading, and what will be the exit points and entry points of your trading.
Remember that you should never start intraday trading without understanding all the critical factors associated with it. Don’t forget your limitations. Always focus on the market condition before selling or buying stocks in intraday trading. This way, you can mitigate the risks associated with intraday trading.
Put Stop Loss and Right Points Before You Enter the Trade
Placing a stop loss in intraday trading is extremely important. The new traders and the experienced traders should not underestimate this point.
Peter DiCaprio says stop loss is one of the most factors of intraday trading. Additionally, it is one of the most effective tools to reduce potential losses and risks. But do you know what the stop loss is? This is the order you place as per the direction of the trading price opposite to your desired price so that you can restrict your losses.
Make sure you place the stop loss while entering the intraday trading market. This way, you can determine the maximum possible losses.
Consider the Downside Put Options or Upside Call Options
Hedging is one of the best risk management methods applicable to experienced traders. This option will provide you with the right but not the obligation to sell or buy stocks. You need to pay a small amount of money to leverage the benefits of hedging. You can also utilize your rights to buy or sell stocks as per the market’s direction. Remember that hedging comes with a put option and a call option. With the put option, you can sell the security, and with the call option, the holder can purchase the security. The time duration is known as expiry.
These are the top 3 risk management factors you should consider in intraday trading. You might face difficulties understanding the steps mentioned above. Therefore, make sure you read the article thoroughly.