Risk Management

Risk management is account management. Look at the downside first and you keep enough of the account intact to take the upside when it shows up.

Nobody blows up on one trade

Traders rarely end an account on a single bad trade. They end it by compounding small mistakes that nobody managed. One bad habit, repeated often enough, becomes a terminal risk.

Both loops have the same shape. A loss produces a feeling, the feeling produces a worse decision, and the worse decision produces a bigger loss. Breaking the loop anywhere stops it. Breaking it at the first step costs the least.

Risk scales with the account

Your rules are not someone else’s rules, because your account is not their account. Set risk as a percentage and let it follow the size you actually trade.

Not every day deserves the same size

Some days are better to trade than others. Think of it the way you would a television series: some sessions are filler, and some are the payoff from months of setup. If you are going to size up at all, do it on the second kind. Those days usually involve:

• A key level breaking after weeks or months of consolidation
• The major indices and related sectors breaking key levels too, or showing very strong price action
• Follow through across the indices, the sector, the stock in question and its peers

Outside those conditions you can still trade. What you should not do is put size behind a day that has not earned it.