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What is Risk Management?

The absolute number one thing you must – MUST – implant and stick to if you are learning day trading for beginners, Risk Management is the most basic and important day trading lingo, you’ll need. Or you will lose, and you will lose a lot.

Every single trader has tried to buck this system. Me included. And has learned this the very hard way. If you don’t have your risk-managed, as in knowing exactly how much you are able to risk per each trade, you will end up losing all your money.  

So learn from me. Have your risk management in place. When a trade is losing, (which happens – but with a good system you will be having more profitable trades than losses – but you need to be prepared) don’t move your risk hoping it will turn around and go your way.

NOTE – if you find yourself hoping, wishing, praying, feeling lucky or unlucky while trading you are definitely going to lose. There is no such thing, you either are certain that your trade is good as with your studied strategy or you are winging it and that’s terrible.

A doctor never walks into the operating room wishing or hoping to make the right moves, she knows exactly what has to be done. If something goes wrong, she is prepared to deal with it (that’s her risk management).

So what is risk management?

It is what risk you put in for every trade you take.

You never want to have more risk than your reward. EVER!

You can do 1:1, 2:1, 3:1, etc…

How to determine what your risk will be?

The rule of thumb is anywhere from 2% to 10% of your entire portfolio. So if you have $2000 in the account, don’t risk more than $200. And in my opinion, that’s too much. So stick to the lower percentage bracket, this allows you to take more trades.

Risk management, when you start trading, will be 50% of your trading strategy. For beginners, you will need to understand that this is a fundamental part of your trading and you need to come up with the one that will work best for you.

Important to Know and Understand About Your Risk Management:

Only trade with money you can afford to lose.  

I know, who has money sitting around to lose, right?

Remember, when your plan is solid, you will be winning more than you will be losing. Losing is simply part of the game of trading. But it still sucks!

The money you will have for trading should not be the money for rent, for eating, for sending your kids to school. It should be separate.

And I’ll go back to your trading plan – if you have trade setups that are 70% probability of winning, which is 7 out of 10 trades are winners, you can handle the 30% loss, you still come up way ahead.

Related Read: Day Trading Terms And Definitions

If you want to learn more about my journey and how I started you can read it here or you can watch on my YouTube channel.

If you want to learn day trading for beginners and how to start trading with ease and confidence – Sign up for the FREE Mini Course.

So if you have any questions you can always ask me at traderchick.com and if you want to learn day trading basics – check out MY Courses.

Risk Management