As I said in yesterday’s StocksToTrade Advisory video, multi-day runners have been very strong lately.
Add that to the resurgence of quantum computing and the drone sector that’s been on fire…
And oh, I almost forgot, look at Tesla Inc. (NASDAQ: TSLA):
TSLA 5-Day, 5-Minute Candles Chart; SteadyTrade
Stocks, and stocks, and more stocks!! Oh my!!
With the sea of opportunities we’re facing, it’s always a good idea to review some of the fundamentals that every trader, new and seasoned, should know.
Today, I want to discuss one of my top priorities, maybe my top, when teaching and mentoring: risk management.
Table of Contents
Mastering Risk Management: The Cornerstone of Trading Success
Look, I know it’s not flashy but risk management is necessary to survive the trading game so you can make those cool, exciting trades.
If you focus on minimizing your losses while maximizing gains, you’re building a foundation for long-term growth.
The Psychology of Risk
Risk management isn’t just about numbers but mastering your emotions. Fear and greed are your biggest enemies.
An example of fear:
Ever been in a losing trade and refused to exit your position, hoping it magically turns around?
I’ve been there, and let me tell you—it rarely ends well.
And greed:
On the flip side, maybe you’ve had a stock blow past your target and now you’re thinking, “What if it goes even higher?”
Next thing you know, it tanks, and you’re left with nothing—or worse, a loss.
By the way, there is a strategy to letting your winners run. Read more about it in my recent blog post.
So, how should you manage fear and greed?
Stick to your plan. Your initial stop loss and target aren’t just arbitrary numbers. Treat them as hard rules that you cannot break.
Always Have a Stop Loss
And speaking of stop losses, always set one before entering a trade.
If you’re figuring out your exit plan while you’re in the trade, it’s probably too late.
And for volatile stocks, I can’t stress enough how important it is to set a stop loss.
Without a predetermined stop, you’ll hesitate, overstay, and watch a small loss snowball into a disaster.
Position Sizing: Know Your Limits
Use a position size calculator to know exactly how much to risk based on your account size and stop loss.
So if, for example, you’re buying a stock at $1.50 with a stop at $1.25, you’ll know exactly how much to allocate.
This prevents crippling losses that could take months to recover from.
Remember, one bad trade can wipe out weeks—or even months—of progress.
Diversify Your Approach
Day trading and swing trading complement each other beautifully.
With swing trading, you don’t need to monitor stocks every second, which makes it perfect for part-time traders.
And then think long-term…
Once your account reaches a size you’ve already determined, maybe diversify into treasuries, real estate, or longer-term investments.
Adjust Your Risk Based on Market Conditions
Markets are cyclical. When things are hot and your setups are working, don’t be afraid to increase your size conservatively.
On the other hand, when you’re struggling, scale back, or even take a breather to learn something new or refresh what you already know.
To learn tons of trading tips and tricks, join our StocksToTrade community.
We have tons of free live webinars.
They run all day and walk you through real-time trading. They also offer information on our Oracle trading system and other valuable training.
Learn From Your Mistakes
We’ve all taken big losses—it’s part of the journey.
You’re missing the chance to learn and grow if you’re not journaling and reviewing your trades.
Journaling isn’t glamorous, but it’s extra work that pays off.
Use the Right Tools and Resources
A great platform is the basis for successful trading. It should offer real-time data, charting, stock screening, technical tools, and more.
My top pick is StocksToTrade and I use it every single day.
And right now, you can get two weeks of both the STT platform and our news service, Breaking News Chat, for $17.
Grab your 14-day StocksToTrade + Breaking News Chat trial today for only $17!
Tools like StocksToTrade and our algorithmic system, Oracle, help automate good decision-making, freeing up your brain to focus on strategy.
My Final Thoughts…
You can know every chart pattern, indicator, and technical analysis trick in the book, but none of that matters if you don’t manage your risk.
Good risk management is your artillery on the trading battlefield…
That way you can come back tomorrow and trade again, gradually grow your account, and then move on to even more exciting opportunities.
Have a great weekend, everyone. See you back here on Monday.
Tim Bohen
Lead Trainer, StocksToTrade