11 Jun

3 Tips to Improve Your Risk Management


The market’s been hot, right? Perhaps, the hottest!

Look at this stuff – meme stocks have gone through the roof about 10 times over!


Trading is so easy, right? You just buy it and you get paid, weeeee!

So let me, Jason Bond, tell you the best stock to buy right now to make a gazillion percent over the next few days…

Well, NO, NO, NO and NO once more!

I’d never say anything like that and for one simple reason – ecstatic markets are all fun and games until they aren’t.

GME and AMC from yesterday are case in point:

I definitely hope you weren’t the guy who bought in at the very top and is now in dire straits…

There’s one big difference between being a trader and a gambler: a trader manages his risk and protects his capital. 

And this is exactly what I’d like to teach today! 


Why Risk Matters

Those of you who’ve followed me for some time will know how much I like to talk about the importance of risk management. 

And look, I don’t do it because I like how the phrase sounds… 

Rather, based on my experience of teaching thousands of students, I truly believe that the discipline of limiting your drawdowns is one of the strongest predictors of your success or failure in this job. 

There are many immediate consequences of losing money: your capital / buying power shrinks, your mental agility suffers, your patience dwindles, you may get vengeful… and did I mention that losing money in & of itself isn’t fun?

So, why not try and minimize it?

Consistency is key in this game and here are three rules that can help you achieve it


Never Double Down… Ever!


This is likely not the first thing that comes to mind when you think of risk management but believe me – this might be the single most important habit to practice!

It is always exciting and tempting to have more shares at a better price but next time you put out that buy order consider this – what if it doesn’t work?

It only takes one unnecessarily big position to move against you to cause severe, possibly irreparable damage to your account.  

The old mantra goes “it’s better to be safe than sorry” and there are very few places where it’s as applicable as in trading. 

Also, look at it this way: if your position is red, it means your idea isn’t working

Why are you adding to a trade that’s already proving you wrong?

Add to trades that prove you right, instead!


Don’t Go All In


Or even half in. 

Or even a quarter in, for that matter.

I know this will be a tough sell… especially for newer traders with smaller accounts. 

But you will thank me later – same longevity rules apply whether your account is $3k, $30k or $3M. 

You should never be in a position where one trade can cripple you either financially or mentally. 

You win some, you lose some – that’s how trading works. 

Red trades are the cost of doing business, so don’t let them affect your decision making or your life. 


Know Your Risk / Reward


I’ve been dramatic, so let’s talk about something more positive – trading and actually trying to come out ahead. 

I speak about the risk/reward concept often, but let’s recap the basics quickly:

  • Risk is the % or $ value loss if the trade hits a stop level.
  • Reward is the % of $ value gain if the trade hits the target.

There are 2 points here I’d like to emphasize. Both are rather obvious yet often require great discipline to implement:

  1. Your risk/reward has to be positive & the higher, the better. 1/3 is a good benchmark to aim for.
  2. You need to actually know what your stops and targets are, and stick to them – have a plan and follow it. 

Now this may not sound like much to you, but believe me – adapting the habits above can make a world of difference. 


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