The Strongest Plans for Capital Management*
There is no doubt that risk management is one of the most important tools for success, especially in trading within financial markets or in any investment field in general. This is because it helps you understand the potential success of your trades in advance or improve results if you have already started trading. In this article, we will present the basics of risk management, which is one of the most effective and well-structured methods for managing your capital in this field.
As shown in the following diagram, the risk management plan consists of three phases: the first phase is the *action plan, which occurs before your trades; the second phase is **trade management, which is implemented during the trades themselves; and the third and final phase is **performance indicators and evaluation*, which helps you assess the results of your trades and identify strengths and weaknesses in your trading methods or strategy. We will explain each phase in more detail below.
As illustrated in the image, the goals of the *action plan* help you anticipate the best and worst scenarios that may arise during your trades. It also assists you in determining the appropriate lot size for each trade based on your risk percentage. This, in turn, helps you maintain control over your emotions while executing your trades according to your trading strategy.
An example of a trading plan is also provided here to clarify this further.
2. Trade Management
This phase focuses on the results of open trades. It includes various tools and methods you can use during the trade to adjust the account status and manage the profit or loss of your open positions. Four methods for managing trades are typically outlined as follows:
3. Performance Indicators and Evaluation
The final phase of capital management relies on a set of performance indicators to evaluate your trades over a specific period, whether daily, weekly, or monthly. These indicators reveal a great deal about your trading account through numerical data, providing insights into your overall performance.
You can read more to learn more and increase awareness through these following articles
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