Why risk control is important in trading?

 “Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you.” – Larry Hite

As with any business activity, risks are involved in trading as well. And if you take arbitrary risk, your current trade could be your very last one! This is because a single trade gone wrong can wipe off your entire trading account. But, you can’t really trade without risk.

Then, what should you do? You must learn to manage your risk using risk controls. Risk controls are often underestimated. However, a trader who consistently uses them can manage losses and open herself to more opportunities for successful trades.

Risk Control in trading

Risk control in trading refers to a plan-based trading strategy that focuses on identifying, evaluating, and preparing for any potential for loss. Risk represents the probability of loss when the market/ asset price moves in a direction opposite to our expectations.

For risk control in trading, one needs to keep in mind several aspects such as which financial instruments to trade in, time of entry and exit, where to set profit and loss limits, how to identify good opportunities, how to deal with markets moving against our position, how to keep emotions at bay and finally, how to stay on course with a plan.

Here are some ways to execute risk controls and their importance:

1. Plan your trade

It is common knowledge that planning can even win wars. The same concept applies to trading as well. Successful traders plan their trade before they trade.

Have a logical strategy with the stop-loss and take-profit limits chalked out. If you do not plan your trades, it is very likely that emotions will rule your trades and lead to losses.

READ :   How to automate your trading strategy using PHI 1?

2. Follow the one-percent rule

The one-percent rule is essentially a rule of thumb that says that you should never place over 1% of your trading capital or account in a single trade.

Thus, if you have Rs.1 lakh in your trading account, your position in any single trade should be less than Rs.10,000. This is an effective risk control strategy. However, many traders put as much as 2% too or even lower than 1%.

3. Set stop loss and take profit

As highlighted above, setting stop-loss and take-profit is an important part of your trading plan. Although it is mostly done via technical analysis, fundamental analysis also helps with timing.

One widely used indicator to set stop loss and take profit points is moving averages, given that they involve simple calculations and are also widely tracked by the market.

It makes sense to use longer-term moving averages for highly volatile stocks and also use fundamental events such as earnings, news announcements, etc. to account for the timing aspect.

Make sure you calculate your expected return. You may use the following formula: [(Probability of Gain) x (Take Profit % Gain)] + [(Probability of Loss) x (Stop-Loss % Loss)]

4. Diversify your trades

Ensure that you do not put all your eggs in the same basket. It means do not put all your capital in one trade or instrument.

Ensure you have a healthy mix of instruments to reduce your concentration risk to a particular asset class, sector, and even geography. Choosing less-correlated instruments is recommended while trading.

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5. Consider hedging

Hedging is a strong risk management tool. It essentially involves taking the opposite position from your original position.

Here, if your primary position loses, the other position will still profit and make up for the loss.

What if your algorithmic trading platform itself comes with risk controls? It’s true!

PHI 1 comes with various types of Inbuilt Risk Controls that sets the trader free from the constant worry of losses. Unlike other algo trading platforms, PHI 1 not only offers standard risk control but also calendar-based risk controls.

Further, traders can create custom risk controls during strategy creation. Within calendar controls, traders can make use of day control, time control, week control, month control, and date control, which offers them the option of fine-tuning their trading strategy.

Risk Control - PHI 1
Risk Control – PHI 1

Along with superior risk control, PHI 1 offers an all-in-one trading solution so you can use your precious time exploring unique trading opportunities!

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7 reasons why PHI 1 is perfect for Intraday Traders

As the world moves towards automated trading, much of the hassles that come with manual trading like constant monitoring, excessive time consumption, and emotional bias are being done away with. With the rising popularity of algo trading, Intraday traders today have multiple trading-related tools at their disposal.

But, rather than creating a convenient environment, just as too many cooks spoil the broth, too many tools often distract traders from their main task of trading.

As no tools are available that constitute a one-stop solution to systematic trading, these multiple tools need to be integrated to complete the trading process. This shifts the focus of the trader from exploring profitable opportunities in the market to handling mundane tasks.

This exercise results not only in the waste of time and effort but also opportunity loss, directly affecting the trader monetarily.

Not only that, robust, well-proven tools also come at a high cost and most require knowledge of complex coding and languages.

Keeping in mind the hassles of using multiple tools, what intraday traders need is a comprehensive software that handles the entire trading process. PHI 1 can be the perfect enabler for intraday traders considering this aspect. 

Here are 7 compelling reasons why PHI 1 is perfect for intraday traders:

1. Advanced Charting Allows For Detailed Analysis And Saves Time:

PHI 1 comes with advanced charting features and offers more than 120 indicators for free. Intraday traders can also access real-time and historical charts with PHI 1.

How does this benefit the trader? Traders can plot many indicators for live updates. They can also seamlessly analyze multiple facets of a stock, and free themselves from everyday hassles of data integration.

Further, PHI 1 provides pre-integrated data for all symbols including equity, indices, futures, and options.

This saves a lot of time and effort spent on data integration. The trader is also assured of accuracy of data and can use the saved time to spot opportunities in the market.

2. Sit Back & Relax While Your Tried-And-Tested Strategy Plays Itself Out:

PHI 1 allows traders to automate their trading strategy so they can sit back and relax. How? Traders can create any type of trading strategy with PHI 1, even if it is just an arbitrary idea.

Unlike most other platforms, PHI 1 allows the creation of custom strategies outside of templates. PHI 1 offers several testing options as well.

With PHI 1’s Multi-symbol Strategy Creator, the built-in data allows traders to monitor multiple symbols/time intervals/asset classes in a strategy to make trading decisions on one or more of them.

Traders can, thus, create, test, and analyze multiple symbols/instruments with minimal effort. Traders can come up with innovative strategies in just a matter of minutes.

These trading strategies once tested can be implemented automatically, preserving discipline and eliminating emotional biases or impulsive decisions. Once finalized, the system will execute orders as per the strategy.

3. It’s On The Cloud!

PHI 1 is a cloud-based software. This means intraday traders do not have to go through the hassle of download or installation.

They can simply plug-n-play the software. Having everything—right from their data to saved strategies–ready can be a major relief for traders. All their data is also securely saved on the cloud.

4. Your Data Is Yours Only:

Your data such as strategies, trades, portfolio, and reports are encrypted and totally safe. Your data is only visible to you, which provides the added benefit of privacy and security.

5. Create Advanced Strategies Limitlessly:

PHI 1 offers an Advanced Strategy Creator which allows traders to create any type of strategy they can imagine of—no restrictions.

This gives scope to the trader to experiment more and more strategies and spot more trading opportunities.

What’s more, PHI 1 provides robust support via documentation. This includes comprehensive coding guidelines. Additionally, our support team is also there to assist you with coding strategies.

6. Backtesting Ability In Multiple Market Scenarios:

Very few tools are currently available for bulk backtesting, which is essential to determine scenarios where the strategy might underperform.

PHI 1 goes a step ahead to provide bulk backtesting along with auto-analysis of strategy performance. Thus, traders get a score on their strategies in a variety of market scenarios such as volatility, market crash, trending, and so on.

This minimizes the risk of trades, and the trader can choose the best strategy to execute whatever the scenario. The result: stress-free trading!

7. Experience The Ease Of Execution With Multi-Broker Integration:

PHI 1 comes with the benefit of multi-broker integration. This means a trader is free to select a broker of his/her choice from a list of available options. This also enables the trader to get the best rates while placing orders.

Moreover, even if one broker’s service is down or the trader does not have enough margin, they can always place trades through another broker. Never miss another opportunity again!

At the core of it all, perhaps, is PHI 1’s endeavour to ascertain ‘freedom’ to intraday traders.

The freedom—to pursue limitless strategies, to spot unlimited trading opportunities, and above all, to only focus on the real deal, and not everyday mundane tasks.

Imagine this – instead of spending every market day staring at your trading screen, you can spend your day trying out new and better strategies while your automated system executes your working strategy flawlessly without you doing anything. Well, with PHI 1, you do not have to imagine!

PHI 1 empowers traders throughout their trading journey via its all-in-one, powerful algo trading platform.

With the ease of use and the scope of scale that PHI 1 offers, it makes perfect sense to try PHI 1!

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