Knowing the right risk management techniques is one of the easiest ways to ensure that a trader has a successful future in profitable trading.
Risk management is the process of identifying, analyzing and accepting (or then trying to reduce) the amount of risk a trade or investment will have.
This also ranks pretty low as a priority to most traders. But effective risk management is important if a trader wants to keep their gains over the long term. Keeping your losses to a minimum means losing less money in the end — and that’s good for your portfolio!
Typically, you’ll see day traders follow the 1% rule as a risk management technique. This rule means that the most amount of risk a trader is allowed to take for every trade is 1%.
Traders do this by choosing the size of their position so that their total amount of losses is only 1% by the time their stop-loss is triggered.
But let’s be real, some trades are going to require more risk than just 1%. This is the investment world — some risk is necessary for incredible gains. In order for everyday traders to get those desirable profits, they’ll need to know more than just one technique for managing risk.
I know everyone loves talking about how much money they’re making with all their massive gains in the stock market
But no one ever wants to talk about risk management — the key to successful trading and investing.
Having inadequate risk management techniques (or none at all) has already proven disastrous for the economy: The 2007 mortgage meltdown that led into the Great Recession resulted from extremely poor decisions about risk.
Knowing the amount of risk you’re taking on in a trade is, without a doubt, the difference between winning and losing.
Now, I like to trade a lot. I actively trade every day and I love to hold a boatload of positions at once.
However I only have two eyes, so I need to have proper risk management if I want to be able to keep feeding my cats.
Check out the video below for the No. 1 thing I do when it comes to managing my risk. I also want to hear your thoughts on proper risk management. Let me know in the comment section below what you do to manage your risk on trades.
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