Today, I want to take it to the next level. And that’s talk about what happens once you’re in the trade.
More specifically, how to manage risk.
You see, at the beginning of your journey, it’s all about capital preservation.
The chances of you making money in the markets immediately are extremely slim.
That’s why risk management is so CRITICAL while you’re studying.
Here are six of my top risk management rules.
Table of Contents
Rule #1: Cut Losses Quickly
Many of my top millionaire traders don’t trade like I do. Some of them, like Mark Croock, have become excellent options traders…others like Matt Monaco, have dipped into cryptocurrencies…and then you have a handful focusing on short-selling.
I bring this up because finding your niche in the market takes time.
You’ll have to experiment and try new things. And in the beginning…EVERYTHING is new.
Instead of focusing on making money…a better goal is to focus on learning.
And when it comes to your trading…you must cut losses quickly.
In my opinion, it is one of the best ways to survive.
I’ve been consistently profitable for decades and amassed millions in trading profits…it wouldn’t be possible if I didn’t follow my number one rule.
Rule #2: Aim For Singles
If I cut losses quickly, I don’t need big winners to stay profitable. I often want to capture 5% to 20% on my trades.
Rinse and repeat.
From my experience, small winners add up.
Is this style of trading sexy?
But it’s hard to argue with the results.
Rule #3: Don’t Fall In Love With A Trade
Penny stock promoters make people believe these companies will change the world and that investing in these stocks is like getting in on the ground floor of Amazon or Nvidia.
The majority of these companies are absolutely trash.
They usually want to pump the stock up to make an offering to raise capital. They raise capital, diluting shareholders, and the average investor is left holding the bag.
That’s why I never look at these stocks as investments.
They are purely speculative short-term trades.
And while I’m an optimist. When it comes to trading penny stocks, I expect the worst out of them.
Rule #4: Don’t Use Stop Orders
I am not a fan of stop orders.
Because the stocks I trade are volatile.
You can set a stop and get filled several levels below it.
The slippage can be absolutely nuts.
I would rather sit, watch, and manage the trade while being present.
Of course, I am always traveling, which makes trading slightly more challenging.
But if I know I have to hop on a plane or know I will be in an area with no WiFi…I will bail from the trade.
If you’re going to trade…be present.
Don’t rely on stop-loss orders to manage risk, you’re likely to be disappointed.
Rule #5: Don’t Be A Scalper
This is your daily reminder of how extraordinarily beautiful our planet is and we just drove by this perfect lake here in #Norway and had to stop…what eating on a scale of 1-10 would you give this place?! Whewwww I’m just in awe! pic.twitter.com/GXpytU1rzh
The world is a beautiful place.
Why would you want to be in front of your screen all day, scalping for a few pennies?
On most days, I will take 1-3 trades.
But I know some traders will take 10-15.
There aren’t that many good opportunities out there.
And scalping can create some horrible habits and outcomes like:
- Decision fatigue
- Getting triggered after a loss
- Revenge trading
Trading can be extremely overwhelming in the beginning.
But remember, you are in control.
I suggest easing into your learning experience.