A famous quote by Carl Richards about it goes as follows âRisk is whatâs left over after you think youâve thought of everythingâ.
Battle-tested traders will tell you that eliminating the risk completely is an impossible task. Thatâs why the primary purpose of risk management is to protect your trading capital by all means necessary.
We have covered some most used strategies here - Common Risk Management Strategies in Trading
Which strategy do you use? Letâs discuss 
Trading capital - Trading is like doing a business. Capital deployed is risk capital. For me it is a sum of money which is not kept for some urgent emergency immediate or future use. Raising debt and using it as risk capital is also not something I do unless I am confident I can pay it back from other sources if the trading account blows out.
Overnight index positions - only long index options where max risk is limited to premium paid. Also the open position is typically not more than 5% of my overall risk capital.
Overnight commodity positions - I hold futures only because commodity options doesnât have sufficient liquidity to minimise slippage risk. Theoretically the overnight risk is huge and am hoping to hedge it with options or do pure long options once liquidity picks up.
Intraday equity positions - price based stops and per trade loss is typically not more than 5% of my overall risk capital. Automated strategies auto exits at stop price. For manual strategies I place stops in system and donât keep mental stops.
âI tell my fatherâs story of the gambler,
who one day hears about a race with only one horse in it,
so he bet the rent money.Halfway around the track, the horse jumped over the fence and ran away.â
â Howard Marks.
