Risk management is a crucial part of trading and investing, as it allows one to manage and preserve their capital. Obviously, traders and investors have the goal of growing and increasing their capital, but losing positions are a part of a trader’s career. The key is to limit your losses and stay alive to trade another day.
- First things first. Define your time horizon. Are you a long-term gold investor buying bars and coins? Most physical gold buyers purchase the yellow metal for the long-term to diversify one’s portfolio, for hedging reasons, capital preservation and growth. Now, for traders: A commonly accepted principle is for traders to risk no more than 1-2% of their portfolio on any one trade. Know your position size.
- The next key guideline is: know where you are getting out before you enter a trade. Before you enter a trade, identify your price target—where do you look for the market to go? And, define your stop-loss point.
- Let your winners run. Some traders will take partial profits at the first price objective, and then let the remainder of the position run with a trailing stop. Let the market take you out of a profitable trade.
The bottom line? There are many methods of trading and investing. But, no matter what approach you utilize —risk management matters. Stay alive to trade another day.
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