Level 12 of 13 · Risk management
Risk Management and Trading Psychology
By the end you will: protect investment capital.
Successful investors are not the ones who are always right. They are the ones who lose small when wrong and stay in the game. This level teaches you how to size positions, cut losses, spread risk and, most importantly, control your own emotions. Most of these ideas apply equally to investors and traders.
Start with 12.1: What is risk management?
0 / 18 topics0%
Managing risk
- 12.1What is risk management?Risk management is planning in advance how much you can lose on each trade, each stock and your whole portfolio, and sticking to it.
- 12.2What is a stop loss (as a risk tool)?A pre-decided price at which you exit a losing position: your "I was wrong" level.
- 12.3What is position sizing?Position sizing decides how many shares to buy so that, if your stop is hit, you lose only a fixed % of your capital (often 1–2%).
- 12.4What is the risk-reward ratio?The risk-reward ratio compares how much you could lose (to your stop) with how much you could gain (to your target).
- 12.5What is portfolio diversification?Diversification means spreading money across many stocks, sectors and asset types so one failure doesn’t sink you.
- 12.6What is asset allocation?Asset allocation is dividing your money between asset classes: equity, debt (FDs, bonds, debt funds), gold and cash.
- 12.7What is drawdown?Drawdown is the fall from your portfolio’s peak value to its lowest point after that.
- 12.8What is capital protection?Making preserving your money the first priority, before chasing returns.
- 12.9Risk management with ₹10,000, ₹50,000 and ₹1,00,000The same rules applied to three portfolio sizes.
Trading psychology
Most losses come from behaviour, not from lack of information. Learn to spot these patterns in yourself.
- 12.10What is overtrading?Overtrading is trading too often or too big, usually from boredom, excitement or trying to make back losses.
- 12.11What is revenge trading?Revenge trading is immediately taking bigger, riskier trades to "win back" a loss.
- 12.12What is FOMO?FOMO (Fear Of Missing Out) is the urge to buy because everyone else is making money and you don’t want to be left behind.
- 12.13What is greed?Greed is wanting more than is reasonable: refusing to take profit, over-leveraging, chasing "multibaggers".
- 12.14What is fear in trading?Fear shows up as panic selling in falls, cutting winners too early, or freezing and not following your plan.
- 12.15Why do beginners lose money?The most common reasons beginners lose.
- 12.16How to control emotionsPractical habits that keep emotions out of decisions.
- 12.17How to maintain a trading journalA trading journal records every trade: why you took it, entry, stop, target, size, result and how you felt.
- 12.18How to build an investment strategyA written plan covering your goals, time horizon, asset allocation, what you buy, when you buy and sell, and how you manage risk.