Not Managing Your Risk in Trading is like……

a fisherman putting all his bait on one hook and casting it out.

an NBA star betting his career on on 3 point shot from half court.

an NFL quarterback betting his pro contact on one 40 yard pass.

a pro golfer on tour betting his whole season on playing one hole for an eagle.

a professional gambler betting his whole bank roll on one number on the roulette wheel.

a poker pro betting his whole stake on getting that last card to have a royal flush.

believing you are smarter than the rest of the stock market as a whole.

Do any of the above scenarios sound like a good bet? But many traders do it every day with huge bets on Apple out of the money options, holding through earnings, trading with no plan, and taking on huge leverage with margin and options. When you manage your trading risk through stop losses and position size you give yourself a chance to win in the long term. If you risk 1% or 2% of your capital on any one trade that turns a trade into a string of 50 to 100 and takes the pressure off winning any one of them this helps tremendously with the pressures of stress and mental aspect of trading. The truth is that in the market anything can happen at any time. When that black swan flies over and poops on your trade it is much better to still be able to trade the next day.


By Steve Burns

After a lifelong fascination with financial markets, Steve began investing in 1993 and trading his accounts in 1995. It was love at first trade. After more than 30 successful years in the markets, Steve now dedicates his time to helping traders improve their psychology and profitability. New Trader U offers an extensive blog resource with more than 4,000 original articles, online courses, and best-selling books covering various topics.