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Safer Trading: 5 Risk Control Strategies in TradingView

Moneymagpie Team 23rd Jan 2024 No Comments

Reading Time: 4 minutes

As markets grow more volatile, traders seek paths to minimise risk yet still seize profitable opportunities. TradingView has become a premier platform for constructing and testing trading strategies before committing capital. This article examines critical TradingView functionalities that enable traders to navigate markets more soundly by controlling their risk.

Using an Effective Trading Plan

A comprehensive trading plan allows you to trade intelligently and effectively manage risks. Think of your plan as an essential roadmap for navigating complex markets. You can learn from the TradingView community by joining public chats and streams.  Over 50 million traders use TradingView as a charting and social network to identify market openings. Seeing how experienced traders analyse the markets will perfect the development of your trading plan.

Are you a short-term momentum trader or a long-term investor? Do you prefer swing trading or day trading? What asset classes interest you? Establishing detailed objectives keeps you focused on a specific strategy that matches your interests and strengths.

Thoroughly detail your system for entering and exiting trades. Specify the indicators or catalysts you will rely on in your analysis, the exact timing of executions, profit targets, and stop-loss limits.

The process of designing a plan forces you to think through your exact approach, systematise your decision-making, and adopt rules to govern your actions. This helps develop discipline and avoid costly impulse trades.

Know Your Risk Tolerance

This refers to the risk you are willing and able to accept on any trade.

There are several key factors to consider when defining your tolerance:

Financial Situation

How much capital can you afford to risk? Set realistic limits based on your means.

Experience Level

Less experienced traders should take less risk. As you gain skills over time, you can expand your tolerance gradually.

Personal Preference

Your psychology and emotions impact risk decisions. Some traders have a higher innate tolerance, while others are more risk-averse. Know yourself first.

A common risk management rule is to risk at most 1–2 % of your total capital per trade. For a $20,000 account, this would mean a maximum risk of $200-$400 per trade. This percentage approach helps limit losses and preserves investment capital over the long run.

Consider different scenarios for a $1000 deposit:

  • 2%: $20 max loss potential and restrained gain potential.
  • 5% $50 loss potential, elevated from 2% with some gain upside.
  • 10% $100 max loss potential. The highest risk with significant profit potential.

Use TradingView’s ‘Long Position’ and ‘Short Position’ drawing tools in the forecasting and measurement tools to calculate your risk/reward ratio.

Optimise Stop Losses and Take Profits

Stop losses and take profit orders are vital for all trading time frames, but require optimisation based on your strategy. The key is sticking to your predefined plans rather than impulsively changing orders mid-trade. For instance, it’s tempting to shift stop losses, hoping losses recover, but often they continue falling. Similarly, take profits may be left open too long during asset climbs, waiting for more significant gains that never materialise. A good approach is using partial exits, closing parts of winning positions to lock gains while keeping parts open. This balances maximising profits and mitigating risks.

When establishing stop loss and taking profit points, apply these considerations:

  • Use longer moving averages for volatile assets so meaningless swings won’t trigger stops prematurely.
  • Match targets and stops to expected price ranges. Wider stops for bigger targets.
  • Keep stops beyond the current volatility range, around 1.5 times the high-low spread, avoiding unjustified triggers.
  • Actively adjust stops as volatility changes for tighter stops in low-volatility environments.

Trailing stops are another fantastic order type, allowing profits to run while dynamically protecting some gains already made if the trend reverses. The specific percentage trailing amount depends on volatility.

Backtesting for Risk Management

Backtesting enables traders to evaluate the viability of trading strategies before risking capital. It works by applying your predefined rules, indicators, and execution logic to historical charts. This simulates how your strategy may have performed in past market conditions.

Backtesting generates vital metrics, including profitability, risk-adjusted returns, drawdowns, win percentage, and more. Thoroughly analysing these performance measures reveals your strategy’s strengths to leverage and weaknesses to improve. You can refine entry/exit points, adjust position sizing, and customise other parameters to optimise your edge.

However, backtesting has limitations to consider. While valuable for strategy development, historical performance cannot guarantee future returns. Markets evolve dynamically, and unforeseen events can disrupt projected behaviours.

TradingView provides traders with multiple methods to backtest and refine strategies risk-free. You can manually trade historical data through Bar Replay or current market conditions with Paper Trading. For automated strategy testing, Pine Script allows coding trading rules that can be backtested against past charts.

Portfolio Diversification

Diversification manages portfolio risks and opens you up to more potential rewards. You can combine non-correlated assets like stocks, commodities, bonds, and cryptocurrencies, allowing profits in some areas and compensating for losses in others. Another method is establishing positions across industry sectors, which provides exposure to multiple financial cycles.

Hedging is another effective risk strategy. For example, if holding a long stock position into a binary event like an earnings call, consider an opposing options position to protect the downside.

Additional Essential Tips for Trading Success

  • Plan thoroughly before placing trades and execute that plan decisively. Good trading plans separate profitable traders from those who fail.
  • Choose a broker aligned with your strategy. Active trading requires robust analytics, competitive commissions, and reliable execution. The wrong broker choice handicaps your ability to trade effectively. Do diligent research to find an ideal fit.
  • Stress can disrupt even the best plans. So, prepare techniques and schedule trading time to stay grounded.
  • Plan periods of reflection analysing judgments. Record trades with journaling.

Preparing Yourself for Sustainable Profits on TradingView

While trading requires skill and discipline, TradingView can give traders greater clarity. It’s also important to note that experience builds trading experts and emotional discipline. With the proper precautions, traders can confidently profit from different markets.

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.

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Jasmine Birtles

Your money-making expert. Financial journalist, TV and radio personality.

Jasmine Birtles

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