Risk Management

This parameter is available for all static and dynamic stock strategies and Static ETF strategies. It will not be available in the MF strategy builder.

In this article, we will talk about the ‘risk management’ parameter. Risk management is very important in portfolio management. It helps you protect the capital and reduces the drawdown during the downturn. 

Once you come to this step, you will need to enable risk management by clicking on the toggle as shown below. 

Once you enable it, you will see three options. But before diving deep into them, let’s look at how sharpely’s risk management is different compared to other platforms. 

Risk management on sharpely is a bit different

In general, when you place an order, you can specify a stop loss (trailing or otherwise). However, on sharpely, the risk management happens at a position level rather than an order level. So individual orders go without any triggers. However, an internal position-level trigger is maintained. The position-level triggers are calculated based on the average entry price.

For example, suppose you set a trailing stop loss of 10% and you buy 100 shares of RELIANCE at 2800. Your stop loss is set at 2520. Now the price of reliance goes down to 2700. Your stop loss remains at 2520. However, you buy another 50 shares at 2700. Your average entry price is now 2767. So, your stop loss is now set at 2490.

Now let’s look at supported risk management models.

Supported risk management models

Currently, we support 3 models, but we plan to add more in the coming days.

1. Trailing Stop Loss

The first model is a simple trailing stop loss. You can use this by clicking on the Trailing Stop Loss in the drop-down.

In the image above we have kept a 20% trailing stop loss. This simply means if your buying price is 100, your stop loss price will be 80. Once the price of a stock rises to 150, your stop loss price will be 120.  

2. Fixed Stop with Drawdown Protection 

Sometimes, traders want to have a fixed stop when the price goes down but also a trailing stop that triggers only when the price goes above a certain level (drawdown protection)

In the screenshot above, we have set a “Fixed Stop Percentage” at 10%, “Drawdown Trigger Percentage” at 20%, and “Drawdown Stop Percentage” at 10%. Let’s understand this with an example.

Suppose I buy a stock X at 1000. Immediately, a fixed stop is set at 900 (10% below 1000). If the stock price goes below 1000, nothing happens to my stop-loss trigger. If the stock moves up, my stop-loss trigger will remain unchanged (at 900) until the stock price goes 20% above the entry price. So, till 1200, my stop loss trigger remains at 900. But beyond that, trailing stop kicks in. Suppose the price is 1250, my stop loss trigger will be 1125.

3. Fixed Stop and Take Profit

This is the simplest model where stop loss and take profit triggers are fixed and do not move with stock price change. If the stock moves below the loss trigger or moves above the profit trigger, an exit happens.

In the screenshot above, we have set a Fixed Stop Percentage of 10% and a Take Profit Percentage of 20%.

And that is it for this article. In the next article, we will talk about ‘other parameters’. This section will be available in all types of static and dynamic strategies for stocks, MFs and ETFs.