Risk management is the secret weapon of successful traders.
Here are 5 uncommon but powerful steps to protect your trading capital:
The 5-Minute Pre-Trade Checklist
A quick checklist reduces impulsive trades and improves decision-making.
- Write down your entry, stop loss, and target.
- Check if the trade aligns with your overall strategy.
- Confirm that your risk matches your predetermined rules.
The Monthly Strategy Audit
Regular reviews help you adapt to changing market conditions.
- Set aside time at the end of each month to review your trades.
- Look for patterns in your winning and losing trades.
- Make small adjustments, as needed, to improve your strategy.
The 2:1 Reward-to-Risk Ratio Minimum
This rule ensures your winners outweigh your losers.
- Only take trades with potential profit 2 times your risk.
- Be willing to pass on trades that don’t meet this criteria.
- Use this ratio to set your profit targets.
The Correlation Check
This step helps you avoid overexposure to related assets.
- Group your trades by market sector or asset type.
- Limit your exposure per group above.
- Diversify across uncorrelated assets to spread risk.
The “What If” Scenario Planning
This prepares you for unexpected market events.
- Regularly imagine extreme market scenarios.
- Plan your response to each potential event.
- Practice executing your plan in a demo account.
To learn more about How you can Start Trading for a living, sign up below for my Free Training on the “7-Steps to Financial Freedom through Trading”.
