Risk and Trade Management

Every trader is aware of the need to manage the risk of a trade by considering risk capital, position sizing, stop loss, maximum loss in a day/week/month, booking partial profits, and using trailing stop loss.

But, most of the traders are unaware that different styles of trades need different risks and trade management system.

The difference comes in position sizing and fixing stop loss. For swing trades, we should allocate a smaller amount compared to intraday trades because for swing trades, we need to hold the position for a few days or a few weeks. But, for intraday, we can exit the position on the same day itself with profit or loss incurred in the trade.

Swing trade: The stop loss will be high enough if we fix the stop loss at the previous swing low.

Intraday Trade: The stop loss should be low if we fix the stop loss at the previous swing low or high/low of the entry candle.

In both trading styles, we can use Fibonacci levels or ATR (Average True Range) to manage this issue or fix the maximum risk per trade. 

ATR can be used in the following way:

First and foremost, decide Risk Per Trade

If Trading capital = ₹5,00,000/-, then  Risk per trade = 1% = ₹5,000

Determine Stop Loss using ATR

A common method:

• Stop distance = ATR × Multiplier 

(usually 1.5–2 for swing and 0.5–1 for intraday).

• ATR = ₹20 (from daily chart)

• Multiplier = 2 

• Stop loss = ₹40 per share.
  

Calculate Position Size

Position Size =  Risk per trade​/Stop Loss

If Risk per trade = ₹5,000 and Stop Loss = ₹40

Then Position Size = ₹5,000/₹40 ​=125 shares

Adjust Accordingly

• If 125 shares cost more than your buying power, then reduce the position size.
  
• If ATR is too large for your capital and the position size comes out to be too small to trade effectively, then skip the trade.

Fibonacci levels can be used in the following way:

If Trading capital = ₹5,00,000/-, then  Risk per trade = 1% = ₹5,000 

Calculate Stop Loss

If stock: ₹1,000 (high)  and  ₹900 (low)

If it pulls back to 50%  and the entry level is ₹950

Then stop loss just below 61.8% = ₹940

Therefore, stop Loss = ₹950 – ₹940 = ₹10

Position Size

Position Size = ₹5,000/₹10​ = 500 share

Avoid setting the stop loss exactly on the fib level; give it a 0.5–1% buffer.

Pro Tips

Always round down the position size, which means it’s better to risk less than to lose more.

Calculate ATR/Fibonacci weekly (week chart) for swing trading and ATR/Fibonacci daily (day chart) for intraday trading.

Golden Rule 

Capital preservation comes first, profit comes second.
Survive long enough, and you’ll have many chances to make money.