Risk Management and Trading Psychology
Trading and investing are subject to risks. Our emotions also influence our choices in the market and could aggravate risks. This module discusses risk and risk management tools along with the psychology required for sustaining in the markets.
16 chapters
Introduction to Risk
Types of risk in trading. Systematic vs unsystematic risk.
Position Sizing
How much to risk per trade. Kelly criterion and fixed percentage methods.
Stop Loss Strategies
Placing effective stop losses. Technical stops, volatility stops, and trailing stops.
Risk-Reward Ratio
Calculating and targeting proper risk-reward. Why it matters for profitability.
Understanding Drawdowns
Maximum drawdown, recovery time, and emotional impact of losing streaks.
Portfolio Risk Management
Diversification, correlation, and managing overall portfolio exposure.
Value at Risk
Quantifying potential losses. VAR calculations and limitations.
Trading Psychology Introduction
Why psychology matters. The mental game of trading.
Cognitive Biases in Trading
Confirmation bias, recency bias, and anchoring. How biases hurt traders.
Fear and Greed
The two dominant emotions. Recognizing and managing fear and greed.
Overtrading
Why traders overtrade. Boredom, revenge trading, and FOMO.
Trading Journal
Recording and reviewing trades. Building a journal for improvement.
Building Discipline
Sticking to your plan. Developing routines and rules-based trading.
Handling Losing Streaks
Staying composed during drawdowns. When to pause and reassess.
Developing a Trader's Mindset
Process over outcome. Thinking in probabilities.
Building Your Risk Framework
Creating a personal risk management plan. Checklists and rules.