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Sri Lanka Equity Forum » Stock Market Talk » Risk Management

Risk Management

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1 Risk Management on Fri Feb 16, 2018 3:53 pm


Expert - Technical Analysis
Let's say My Portfolio(PF)  is worth LKR 150,000/-
And today I'm buying VONE 500 shares @ 21.40 Hoping Price
Will reach LKR 27.20  and I'm hard enough to hold VONE until
Price reach LKR 19.20 if this movement is lost.
So my position size is =(VONE Price x Number of shares bought)/PF
  = (21.40*500)/150,000 x %
  = 7.1 %
My Risk (R) is              =  Stop Loss/Total Investment
 = ((21.40-19.20)*500 )/ 10700 x %
 = 10% ( only for this trade)
My Risk  in terms of
My portfolio               =  Loss for this trade / Total PF value
 =   1100/150000 x %
 = 0.7% 
Your risk is 0.7% of your total money which seems fare for me , even up to 1% Ok for me ( depends on your willingness to loose).
But if you are taking a risk  more than 1% of your PF it is very very BAD!!!!!!!!!!!!!
My profit  = (27.20-21.40) x 500 = LKR 2,900/-
Profit in terms of you Risk = 2900/1100 = 2.6364 R
So don't open a trade which is less than 1R means you are
Taking a big risk than your profit (if it goes your way Smile)
This is called you are taking Calculated Risk !!!!!!!
When you take your next Position Now your PF value is 150,000-10700 = LKR 139300 /- 
Even in your life you have to take calculated risk. Don't Risk your life blindly. !!!!!!!!! Smile
I mean everything has a risk ,
Investing is Risky but investing blindly is much much... Riskier. Somebody can say Driving is risky, yes it has involved certain risk but driving without touching the steering-wheel  is much more riskier.

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