Managing Risk with SMILE The most important prerequisite for active trading along with capital is managing the risk. This increases the profitability and reduces the losses which helps to keep the trader active. There are so many risk management techniques which improves the trading skills. like some of the great experts has said, “Don’t focus on making money; focus on protecting what you have.” this quotes best fit to the risk management in stock markets. if you want to take your trading to the next level then you have to pay attention on money and risk management. most of the traders keep daily / weekly performance targets, takes wrong entries and end up with losses. The best way is setting a limit on the maximum risk to be taken per trade and it is called position sizing. Successful traders create their own risk management strategy by determining up front how much money they are willing to lose on each given trade. In other words, before you place a trade to buy a stock, you need to set your maximum risk. Setting stop loss is most important, when you spot an entry signal, think where you’d place your stop loss and take profit order first. Once you have identified reasonable price levels for your orders, measure the risk:reward ratio. If it doesn’t match your requirements, skip the trade. Don’t try to widen your take profit order or tighten your stop loss to achieve a higher reward:risk ratio. traders often moving their stop loss to the point of the entry and so creating a “no risk” trade which is very dangerous. Knowing your maximum downside, the most you are prepared to lose on a trade, is one of the main rules of risk management when trading stocks. Utilizing a stop loss order on each position you open will mean that your trading system and strategy removes the emotional tie to a trade, and helps to keep your trading disciplined. The good trading isn’t about always picking the right stocks, or the right prices. It’s as much about managing your risk, and integrating a strong risk management into your trading strategy. AlgoGeek Algorithmic Trader. R&D in Financial Markets. Professional Coder.