How to manage your investment risk? Asset allocation

Finally, we come to the most important part. Investment risk management is an important part of investing in securities. This determines whether you make money or lose it in the market.

There is no doubt you have read a lot about risk management and probably have tried a number of strategies. One strategy more successful, another one not successful perhaps.

It is also certain that you know, and such a strategy: If you started with one contract and you have enough profit to invest in two more contracts. And so on. Doubles position, while the market is rising.

This is a very risky approach, because your average price goes up geometrically, and if the market should retrace a few percentage points, you would be WIPED OUT.

The idea of add on to position when market goes in one direction with your position is very good.
But …

We need to think about risk management. And the principle of reverse pyramiding comes here to help us.

Principle is very simple. In particular, we forget any doubling of position. Second, we want our first entry to be minimal, because we are at greatest risk on this entry. Why?

We will never know and no one can know where the market will go after a moment. Every time you open a position, we are very strong at stake. Therefore, we can minimize risks i.e. our first entry is minimal.

But once that first entry becomes profitable, we want to get much aggressive ant put on a much larger position and follows that up with further decreasingly large entries.

Let’s say that your first...

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