Thursday, 17 August 2017

What Does Risk Management Mean?



Risk management is the most important part of trading. It is without doubt that you will lose at some point or another. No matter how good you are or how long your streak is you will lose eventually. Without proper risk management it is possible to wipe out your account without even meaning too. You don’t have to make overly risky trades, although any trading is risky. All you have to do is make a short string of losing mismanaged trades to put your account at risk. Position sizing is the pillar of a good risk management system.

It’s easy to sit and say to yourself…self, I have a good risk management system and I will be profitable over the long term. It’s much harder to actually use it. It takes serious will power and self control to properly utilize a good risk management system. Every single trade has to be made according to your rules. When there is no signal or no room in the account for another trade you have to be able to walk away. At the same time when you are riding the high of profits you have to be able to stick to the rules as well. In between, when you get bored, you have to stick to the rules.

Risk management is important for many reasons but one is first and foremost. You have to be able to manage risk or you will get wiped out. If you get wiped out you can’t trade and when you can’t trade there is no chance of your account getting larger. Risk management is hard to follow but remember that it is better to be able to make a small trade than no trade at all.


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