Hello traders! This week I’d like to discuss a topic that everyone is aware of, but seemingly many new traders don’t take very seriously. That topic is risk management. In every Online Trading Academy class that I teach, I ask the simple question: “What is the Holy Grail in trading?” Numerous answers come up, from supply and demand to trendlines to moving averages to a combination of technical indicators – MACD, Stochastics, etc. In my opinion, these answers are all wrong.
In my experience, the Holy Grail in trading is risk management. Everything else mentioned tells us when or where to trade with their corresponding odds enhancers – many more of which are discussed in our Extended Learning Track rooms. But what happens when the perfect trade comes up? Do you risk your entire account, and your trading career, on this trade? Of course not! This is where one factor in proper risk management comes up.
So how many risk management rules are in your trading plan? Hopefully at least one! The following is a list of suggestions including reasons for them.
The first rule I suggest is how much to risk of your account on a particular trade. A suggested range we instructors recommend is anywhere from 0.5 to 2% of your risk capital per trade. If you have a $10,000 trading account, this would be from $50 to $200 per trade. The reasoning for this is if you have a losing streak of several losses in a row, you won’t blow up your account waiting for those winners to arrive.
Our next rule is the number… Continue Reading
