My Risk Management Tool

Apurva Sheth

Over the last two weeks, I have written to you about risk management. In The Backbone of My Trading System, I wrote about the two basic premises on which our risk management system is built. The first is not to risk more than a fixed amount of capital on any trade, and the second is to risk only a small portion of the capital on any single trade.

Allow me to clarify: Risking a part of your capital is different from allocating a part of your capital. The amount at risk is the amount you stand to lose if the trade goes against you.

For example, say you bought 300 shares at a price of Rs 100 and have a stoploss of 95. Your amount at risk is Quantity * (Entry price - stoploss) which is 300 * (100-95) = Rs 1,500.

But your capital allocation will be Quantity * Price which is 300 * 100 = Rs 30,000. So here your capital allocation to this trade is Rs 30,000 but your capital risk is only Rs 1,500.

It goes without saying that you will respect the stoploss and exit from your position if the stock touches 95. It is only if you exit from your position at 95 that your risk will be limited to Rs 1,500. If the stock drops below 95 and you hold on to it, then you lose more than Rs 1,500.

In a video newsletter I sent last week, I showed you how I manage risk in tradin with the help of our specially designed portfolio tracker tool. I showed you how the portfolio tracker helps us decide the ideal position size to limit your risk on every trade.

But that was only a glimpse of the portfolio tracker. There's much more to it, and today I will show you all the other features of the special portfolio tracker that we have built for Swing Trader subscribers.

Please enjoy this video newsletter.

How do you manage your trading risk? Share your views in the Club or share your comments here.

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