![]() For example, with $10,000 in your trading account, how would you feel if you lost $8,000 in a month? Would it prevent you from continuing to trade? It could, especially if that $8,000 can only be replaced by making winning trades with the remaining $2,000. ![]() So, what constitutes getting hit by a bus? That’s different things for different traders. Consider it the financial equivalent of getting hit by a tricycle, not a bus, should you cross the street. Most of it is common sense-with the goal being to make sure that one trade, or a series of trades in a month, quarter, or year, doesn’t have the potential to create a loss so great that you can’t continue to trade. Managing the risk of your positions doesn’t have to be tedious. After all, look at how much the big financial institutions lost during the Great Recession. But none of that guarantees you earn money or guarantees against losses. You can read thick books on risk management, write algorithms as long as your arm, and test strategies till you turn blue. It may be smarter to minimize the effects of losing trades instead of maximizing the winners.Traders should decide how much of their total capital they’re willing to risk and how much they’re willing to risk on each trade.Know the risk management variables you can control.
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