Knowing the right risk management techniques is one of the easiest ways to ensure a successful future in trading.
Risk management is the process of identifying, analyzing, accepting and then trying to reduce the amount of risk a trade or investment will have.
It’s a low priority for most traders. But effective risk management is important if you want to keep your 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 to where 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 — with no risk, there’s no reward. In order for everyday traders to get those desirable profits, they’ll need to know more than just one technique.
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 my No. 1 risk management technique. I also want to hear your thoughts on proper risk management. As always, leave your thoughts in the comment section below and don’t forget to subscribe to my YouTube channel to stay up to date with all things options trading.
P.S. Small-cap stocks have the potential to rally faster than their bigger, blue-chip cousins. And yet many people ignore this sector in favor of companies they’re more familiar with.
But that’s a huge mistake.
Right now, small caps look to be on the verge of a massive breakout. In fact, they’ve already allowed Roger Scott to signal impressive winners, like 118% on PFSI… 153% on DDD… and even 414% on CNE.
WealthPress Senior Strategist Roger Scott says the key to making these returns is learning how to spot small-cap “microbursts” before they happen… and then riding that momentum as the stock climbs higher.
He’s even agreed to show us how he finds these little-known microbursts.