A Risk Management Framework for Active Traders

The most consistent traders in Dalal Street obsess about risk first, returns later. Here is a robust framework to adapt today.

1. Capital Allocation Rules

• Park long-term allocation in low-volatility instruments.
• Use a dedicated trading treasury with defined max exposure per strategy.
• Rebalance profits monthly; withdraw excess to lock gains.

2. Position Sizing Matrix

| Setup Quality | Risk per Trade | | --- | --- | | A+ (High Conviction) | 1.5% of equity | | A (Strong) | 1% of equity | | B (Prob with data) | 0.5% of equity |

3. Scenario Hedging

• Use protective puts for swing trades ahead of macro events.
• For intraday, hedge index futures with far OTM options to cover tail risk.

4. Quant Alerts

• Track portfolio VAR, drawdown, and streaks using Python or Google Sheets.
• Get SMS/email alerts when drawdown exceeds 6% or when exposure crosses thresholds.

Risk management is not just math—it's a mindset. Automate guardrails so you execute with clarity even on volatile days.