6 Essential Risk Management Strategies In Stock Market Trading

As per the statistics by the Women & Money Power 2022 survey released by LXME, in India, 33% of women do not invest at all, and the figure only increases to 40% in the 21-25 years age bracket. In all, 55% of women in the country are either not investing or are unmindful of their investments.

 
Likewise, as reported by Business Standard, India ranks in the bottom quartile when it comes to female participation in the stock markets, stressing the widespread gender gap in India in comparison to other emerging market peers like China, Malaysia, and South Africa.

The statistics underline the fact that we need more women traders. Trading in the stock market has traditionally been viewed as a male-dominated field, it is about time we break this bias!

While trading in the stock market is a great way to build wealth and achieve financial freedom, but, it can also be frightening, particularly for women who have previously been understated in the financial sector. Nevertheless, trading is an essential footstep towards financial independence and long-term wealth creation. Also, to close the current gender investment gap and achieve gender equality, it is crucial to empower women to trade in the stock market.

There are ways how women can overcome these challenges of trading in the stock market, such as lack of know-how and confidence. With the below tips, they can build a solid portfolio that is in sync with their financial goals.

Select low volatility instrument 

Trading could be fascinating so let's not get lured by highly volatile instruments at the initial stage. Pick the lower volatile instrument and script to trade such as the top 10 stocks from Nifty 50. Try to get familiar with it. Once you see that you have gained a better understanding of market structure and sentiments of price then gradually you can add some more instruments to your trading such as option and Futures, Currency or  Commodity as they are more volatile. Never underestimate learning. Do read books on trading and investments and watch YouTube videos related to the subject to have a detailed understanding of trading and its psychology. Always remember practicality comes after theory only.
 
Trading is a short-term activity

Trading and Investing are two different things, both have altogether different objectives to serve. Investing is all about creating wealth with a long-term perspective whereas trading is to generate an income by doing buy and sell with a short-term holding view, it could be Intraday too. Trading is a business. Trading entails intra-day trading, swing trading, etc. To succeed in trading, one should begin by learning technical analysis. By leveraging technical analysis, one will be able to define entry strategies, exit strategies, etc.

Entry, exit, and money management

To be a successful trader, there are three aspects that you need to be cautious about. First and foremost, outline an entry strategy. There should be a basis or logic that you should have to take an entry in a stock or any instrument that you trade. Secondly, have an exit strategy, which again is to understand the basis of your exiting a stock, whether in profit or loss. Third, have proper money management, risk management, and stop-loss management strategies so that you don't incur a huge loss in one trade.

Never use more than 10% of your trading capital in one trade and do lose more than 10% in one trade. It's a simple rule that you can follow to avoid over-risk and not the opportunity to allure you. If you can grasp the knowledge of these three things, you are already on your way to becoming a successful trader.

Start with a small amount 

Step in the market with small funds at the initial stage to avoid bill losses in the early learning stage Starting with the cash part, also known as the equity segment, is a common tactic for starters. Here, traders have the comfort to buy and sell stocks in real time. Before trading, it is imperative to research and comprehend the fundamentals of the stock market, such as how to read stock charts and analyse financial statements. Traders can also use technical analysis tools to classify market trends and make knowledgeable trading decisions.

Treat it as a profession as it demands time, money, effort and dedication

Practising trading as a profession entails devoting time and effort to learning and improving trading skills. This can include taking courses or taking help from expert traders. Professional traders usually combine fundamental and technical analysis, along with risk management techniques, to capitalize on profits while abating losses. Traders need to craft a trading plan and stick to it, as well as incessantly monitor and adjust their strategies as per the market fluctuations.

Risk Management skill is in your nature, use is it

It's a God’s gift for us. All women are good managers at their places. We do know how to tackle situations, when to stop and how to avoid over-risk. Just use qualities in trading too. Don't be emotional about the price. Just trade it. Trust your analysis and respect it. Accept the results and rework them if required and keep moving.

Empowering women to trade in the stock market is crucial for creating a just and equitable society. By breaking down barriers and offering the resources and guidance needed, women achieve their financial goals by becoming successful investors. They can use their investments to back causes they care about, make knowledgeable purchasing decisions, and underwrite economic growth.

VLA AMBALA is a SEBI registered research analyst and founder of Stock Market Today. Views expressed by the author are their own

Suggested Reading: How To Empower Women Investors In Male-Dominated Markets