In the world of share trading, managing risk is as essential as identifying opportunities for profit. While many traders focus primarily on making profits, few realize that preserving capital and managing risks are equally, if not more, important. This is where Suresh Minhas, a seasoned share market trader and emerging influencer in Singapore, stands out. His approach to risk management in share trading is one of the key reasons behind his success and the trust he has garnered from followers and clients alike.
Suresh Minhas trading philosophy is built on the understanding that no market is ever without risk. In fact, he believes that risk, when understood and managed well, can be used as a tool to drive long-term success. In this blog, we will explore Suresh Minhas’s approach to risk management, which includes techniques, strategies, and mindset that every trader should adopt.
1. Emphasizing the Importance of Risk Management
For Suresh Minhas, the cornerstone of successful share trading is risk management. While it is true that the stock market offers vast opportunities for growth and profit, it also comes with inherent risks, such as market volatility, unpredictable events, and changes in economic conditions.
Many novice traders focus solely on the potential for high returns and overlook the possibility of significant losses. However, Suresh Minhas encourages his followers to adopt a more balanced approach, where risk is calculated and mitigated from the very beginning of every trade.
According to Suresh, a well-balanced trading strategy considers both potential rewards and potential risks. By giving equal weight to risk, traders can make more informed decisions and avoid emotional reactions when the market moves unexpectedly. This approach helps traders stay focused on their long-term goals and ensures they don’t make impulsive decisions that could result in substantial losses.
2. Diversification – The Foundation of Risk Mitigation
One of the primary strategies that Suresh Minhas uses to manage risk in share trading is diversification. He believes that spreading investments across different sectors, industries, and asset classes significantly reduces the risk of losing all of one’s capital in the event of market downturns or sector-specific volatility.
Suresh often advises his followers to avoid putting all their funds into a single stock or industry. Instead, he recommends diversifying their portfolio with a mix of stocks, bonds, commodities, and other financial instruments. By doing so, traders reduce their exposure to any single market event or asset, which helps ensure that one poor-performing investment doesn’t wipe out the entire portfolio.
For instance, if a trader invests heavily in technology stocks and the sector experiences a downturn, a diversified portfolio will contain other assets, such as healthcare stocks or bonds, which may perform better during this period. This type of strategy minimizes the impact of any adverse market conditions and helps protect capital.
3. Setting Stop-Loss Orders
Stop-loss orders are another essential tool in Suresh Minhas approach to risk management. A stop-loss is an order placed with a broker to buy or sell once a stock reaches a certain price, thereby limiting the potential loss on an investment.
Suresh Minhas advises all traders to set stop-loss orders on their trades as a safeguard. By doing so, they can avoid significant losses by automatically exiting a position if the market moves unfavorably. The key is to place the stop-loss order at a level that aligns with the trader’s risk tolerance.
For example, if a trader is willing to risk only 5% of their capital on a trade, they can set a stop-loss at 5% below the entry price. If the stock price falls to this level, the stop-loss is triggered, and the trader’s position is automatically sold, limiting the loss to a pre-determined amount.
While some traders might view stop-loss orders as restrictive, Suresh emphasizes that they are vital for ensuring that emotions do not dictate trading decisions. When the market is volatile, emotions such as fear and greed can cloud judgment, leading to hasty decisions. Stop-loss orders provide an objective, pre-set exit point that prevents traders from holding onto losing positions out of hope or fear.
4. Position Sizing – Balancing Risk and Reward
Position sizing is another key aspect of risk management that Suresh Minhas integrates into his trading strategy. Position sizing refers to the amount of capital that is allocated to a single trade relative to the overall portfolio size.
Suresh Minhas advocates for proper position sizing to ensure that no single trade can expose a trader to an unsustainable level of risk. He advises his followers to determine the size of each position based on their overall risk tolerance and the specific characteristics of the trade. For example, if a trader’s risk tolerance is 2% of their capital on any given trade, they should only invest an amount that would result in a 2% loss if the trade moves against them.
By adhering to position sizing rules, traders can limit their exposure to individual trades and ensure that a string of losing trades won’t lead to a major drawdown of their entire capital. This approach helps maintain consistent risk management and avoid taking excessive risks on any one trade.
5. Risk-Reward Ratio – Calculating the Potential Return vs. Risk
Suresh Minhas also emphasizes the importance of understanding the risk-reward ratio when making trading decisions. This ratio compares the potential risk of a trade to the potential reward and is a key component in determining whether a trade is worth taking.
Suresh suggests that traders aim for a risk-reward ratio of at least 1:2. This means that for every dollar of risk, the trader should aim for a potential return of at least two dollars. For instance, if a trader is willing to risk $100 on a trade, the potential reward should be at least $200.
By focusing on trades that offer a favorable risk-reward ratio, traders can ensure that even if they experience losses, the wins will be substantial enough to offset those losses. This strategy ensures that a trader’s overall profitability is not solely dependent on a high win rate, but rather on the ratio of profit to loss.
6. Psychological Discipline – Controlling Emotions in Trading
Finally, one of the most critical aspects of risk management that Suresh Minhas emphasizes is psychological discipline. Share trading can be emotionally intense, especially during periods of market volatility. Traders can experience fear, greed, and anxiety, all of which can cloud judgment and lead to poor decision-making.
Suresh advises his followers to approach trading with a calm, disciplined mindset. He recommends that traders set clear goals, stick to their risk management strategies, and avoid making emotional decisions in the heat of the moment. By maintaining psychological discipline, traders can remain focused on their long-term goals and avoid the pitfalls of emotional trading.
Conclusion
Suresh Minhas approach to risk management in share trading is built on a solid foundation of strategies designed to preserve capital and minimize potential losses. His focus on diversification, stop-loss orders, position sizing, risk-reward ratios, and psychological discipline ensures that traders can approach the market with confidence and control.
By following Suresh Minhas guidance, traders can develop a well-rounded risk management plan that not only helps them survive market fluctuations but thrive in them. In a world where share market trading is full of uncertainties, managing risk effectively is the key to long-term success. Suresh Minhas’s approach offers a roadmap for traders looking to navigate these challenges with expertise and discipline.