In a way, institutional investors have it easy.
They have set objective rulings about risk, dictating to them when a trade is acceptable or too hazardous. Retail investors, meanwhile, must make their own judgments, ideally rewiring years-long biases to make more logical decisions.
But at our Modern Investor Summit in December, which thousands of you attended, IG’s Axel Rudolph outlined just how you could carve out your own risk-management guidelines.
He discussed only spending 1 to 3% of your overall trading allowance on an individual trade, and suggests you always place a stop-loss order when you buy or sell an asset.
As you trade, make a journal. Detail your reasons for the trade, the time and date you pulled the trigger, the maximum potential, and – crucially – your mental state on a one-to-ten scale.
Axel never recommends investing when you’re in an especially bad mood or a suspiciously good one. After all, too much positivity can make you excessively enthusiastic and more likely to ignore warning signs. So reflect on the success of your trades, tracking where your emotions ranked at that time, and find your neutral stance. Axel said that could be around a seven.
And last but certainly not least, always have a contingency plan in case your hypothesis isn’t on the money (literally).
