Manage Your Risk to Preserve Your Capital

Hitting one's stop loss can be a psychologically debilitating experience; however, there is one situation that begets even worse emotions, turning a green day into a red day. Often times, when a trader is making money he or she will try to utilize their “strong hands” to extend the winnings even further. This is a perfectly acceptable and in fact a successful strategy as long as risk parameters are heeded. When a trader has booked positive P&L, it seems as though they are playing with house money; a feeling that can lead to outsized risk. When a position begins to move against that trader, they feel....