How to keep a low-risk score?
Keeping a low-risk score might prove challenging if you are into high-risk trading — meaning using leverage like x5 to x50 or using more than 50% of your portfolio size. However, it is important as it will measure how you manage your risk that will in turn tell you how are you performing in your trading journey.
If you are serious about your trading journey (I expect you are if you are reading this now), you should aim for consistency. Consistency in your returns and consistency in dodging bad trades.
Bad trades can be:
- Overleveraging – basically you overborrowed too much money from eToro
- Overtrading – you opened too many positions that your exposure is now too big and beyond your trading threshold.
- FOMO trades – trades that you opened just because someone was hyping it by sharing charts predicting potential gains and sometimes actual current gains.
- Revenge trade – when you were consistently losing trades and you keep on going in because you want to recover your losses without checking your trading strategy.
There are a lot of examples but these are the reasons that popped on my head.
So how to lower or maintain your risk?
It’s very simple to say it here but most of the time hard to follow:
- Follow your trading strategy – This is the big one. Your trading strategy should have basic limiters like:
* Only open positions not bigger than the specific % of your portfolio.
* Only use leverage as high as x5.
* Only use the maximum % of your overall portfolio size.
- Do not get FOMO-ed.
- Diversify your portfolio. Even top traders can have a bad day, month, or year. So it’s always a good practice to diversify your positions to assets you are confident (done with your due diligence?) on.
These are simply reminders but VERY EFFECTIVE if we are able to consistently and diligently follow them.