Risk Management in Trading: Stop Loss, Position Sizing, and Portfolio Protection

Risk Management in Trading

Risk management is the difference between successful traders and bankrupted ones. Position sizing limits loss on any single trade to 1-2% of portfolio. Stop-loss orders automatically exit losing positions at predetermined price. Never skip stop-losses hoping for recovery. Risk-reward ratio should favor winners - risk $1 to potentially make $2 or more. Diversification spreads risk across uncorrelated assets. Portfolio insurance protects against major downturns. Kelly Criterion mathematically determines optimal position size. Leverage multiplies risk - avoid for most traders. Trading plan documents entry, exit, and position size rules before trading.