One big market down days we can really see who is managing risk and who isn’t. Always remember if you have big winning days and trades that are disproportionally large percentage wise then the odds are that you are also exposed to the downside risk of an equal magnitude. Here are five quick tips for risk management for traders.

For Traders: 5 Quick Tips For Risk Management

  1. Structure your position sizing and stops so that you try to never lose more than 1% on any of your trades.
  2. My maximum risk exposure is a total of three trades on at once risking 1% per trade each for a total possible drawdown of 3% in one day if all three go against me at the same time.
  3. I do not trade individual stocks that are highly volatile. I prefer my alpha to come from leveraged index ETFs or option trades for a smoother equity curve.
  4. I trade in the direction of the trend on the daily chart so my biggest risks and losses come from big whips saw reversal days. (Like today).
  5. I honor my stops when they are hit. I do not hold and hope. I get out and get back in later.