Q. My biggest worry with trading is losing more than I intend to. My goal this year is to lower my risk, diversify and protect myself better as a trader in 2024. Do you have tips on what I can do when it comes to placing a stop loss on my trades, so that I can let my winners run. And second, do you believe in having more than one trading account with your performance?
Right now I am only trading one account and one portfolio on a few markets (Shares, indices and Forex). I look forward to your answer.
A. Hi H*, thank you for the great question. Let’s start with the stop loss.
The only way to mitigate your risk in a trade is with a stop loss. When you place a stop loss, you’ll essentially set your boundary and max risk you are willing to lose.
The key to setting a stop loss is to ensure your potential gains (take profit) are always higher than what you’re willing to risk (stop loss).
To do this, I like to set my take profit level ideally 1.5 to 2 times more than where I set my stop loss.
The formula you can use is:
Take profit level = [(Entry – Stop loss) X 1.5] + Entry
Take profit level = [(Entry – Stop loss) X 2] + Entry
That’s the first step to keep your winners running.
Diversification with other trading accounts:
I truly believe in having two or three trading accounts with different brokers. It is in fact, absolute genius for trading and risk management purposes.
That’s because when you spread your investments across different markets, you create a safety net.
When one market is having a rough day, another might be doing incredibly well.
You’ll also be able to distinguish between how certain markets are moving according to your equity curve (portfolio).
For example, Forex is a world of markets on its own.
When stocks or indices are lagging or not doing great, Forex might be there to save the day and your portfolio.
And vice versa.
And because gearing is different with stocks and Forex, it’s a great idea to separate the two accounts.
This is so you can track, analyse and monitor each market and account differently.
Even diversifying your funds across two brokers always feels the safer way to protect your assets.
I’ll take it one more step further for you.
I would even open an international US dollar trading account with my broker.
That way I’ll be able to hedge and protect my money, against a weakening rand.
Want to get started trading, then join Red Hot Storm Trader, you’ll get all the information you need to join and build your trading account, how to set take profit levels and stop loss.