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Risk Management is mandatory in the professional side of the market. Professional Traders are constantly mitigating risk factors and trade lot sizes that can be very large, as huge as 5 million shares at a time. Obviously these lot sizes are never seen on the public stock exchanges where retail traders trade because that would create a huge anomaly in the order transactions and price.

Risk Management is done by professionals to maintain a level of risk that is reasonable and controllable.

For you, it is about assessing first your risk versus profit potential. For my students who are just starting my training, it is all done via simulators at first. I encourage all traders to start with either Swing trading or Platform Position Trading which is a lower capital base style, that is very forgiving of mistakes.

Swing Trading is the style used if you want to actively trade stocks most days. Day trading is discouraged as it usually requires 3000 - 5000 hours of practice trades to start attaining the level of expertise, skill and profit required to be a day trader. It is simply an exceedingly hard style to master and actually make a living doing. It is promoted because traders do not know the facts about day trading and are all enamored with the myth of day trading.

Professionals gave up day trading way back in 2002 when decimals shrank the spreads to a penny or half penny on the pro side. They mostly swing trade.

Swing trading requires a 3 point profit potential minimum for every 1 point profit. NEVER use percentages as you can’t take a percentage to the bank. This is not a percentages “game” it is trading for serious money. Higher ratios during choppy markets or indecisive markets as we have now is advisable.

The way to calculate this is first you find a Buy Entry Signal for Swing Trading. Do not use reversal or continuation candles as these are no longer reliable. Learn the New Western Candlestick Entry Signals.

Then you calculate the prior recent runs of prior pro trader setups and runs. The stop loss must NOT be a percentage as the market making computers, HFTs, and some pro traders can SEE those stops and know that retail uses percentages so whipsaws are common and cause unnecessary losses.

Use the proper support level for your trading style. I teach all this in a comprehensive course for swing trading.

The run gain potential points versus the stop loss at the appropriate level for that specific stock swing run pattern is your risk to profit ratio. Again it should be a minimum of 3/1 and I prefer students choose stocks that are 4/1 -10/1. It is simply a matter of using the scans, sorts, etc provided to each student with their course.

The Risk Tolerance is something I teach but basically it is about assessing your personal risk tolerance. Everyone is different. If you are just starting out, then risk tolerance will be lower because you are not experienced and well trained. If you take a lot of losses, your risk tolerance declines along with your confidence and then trading becomes a nightmare scenario where you are sure you can make money but the losses are more than your profits.

I strive to convince traders to learn first, as I am a credentialed, retired professional and if I can convince traders to study, learn, apply and hone skills first, then they are successful from the start.

It is a lot harder and a much longer task to get rid of a student’s bad habits built on poor training and a lack of understanding how trading really should be done.

 

[lioralace]

Alright, let’s be real for a minute: if you wander into trading thinking it’s gonna be non-stop Lambos and easy money, you’re in for a rough wake-up call. Everybody gets dazzled by the flashy stuff—the charts, those “buy now!” signals, all the hype about getting rich quick. But, honest truth? The folks who actually make it in trading—yeah, the grumpy old pros—will laugh in your face if you think it’s about picking stocks. It’s not. It’s all about risk management, baby.

Professionals? Whole different league. They’re not out here yolo-ing on meme stocks like some Reddit newbie. These guys move millions of shares at a time—and you bet they treat risk like it’s the boss. You won’t even see their trades pop up on your screen; big players keep a low profile so they don’t spook the herd or tip off the bots. For them, it’s survival mode: nothing gets left to chance. Every risk is measured, calculated… probably over-caffeinated, too.

So, lesson for the little fish: treat trading like you’d run a business—not a Vegas weekend. If you don’t know what “risk-to-reward ratio” means, Google it, memorize it, get it tattooed on your arm—whatever works. Best bet for newbies? Stuff like swing trading or platform position trading. Why? Because you don’t need to be glued to your screen sweating every tick, and it won’t burn through your cash (and your sanity) as fast as day trading.

Let’s kill this myth right now: day trading is basically the trading world’s version of American Idol. For every winner, there’s a thousand people who left with nothing but a bruised ego. People love to hype it up, but making real money at it? Expect to blow through 3,000 to 5,000 trades (and probably several keyboards) before you find your groove. Plus, spreads are razor-thin and, honestly, the bots will eat you alive if you’re not careful. Even the so-called “pros” bailed on day trading ages ago. Swing trading became their thing—it moves slower, you wait for your moment, and you don’t have to beat the machines at their own game.

Rules of the road: don’t even mess with anything less than a 3:1 profit-to-risk ratio. None of this percentage nonsense—that’s for amateurs and people who still use fax machines. You wanna risk 1 point? Fine. Make damn sure you’re aiming for at least 3 points in return. When the market’s acting wild (hello, meme stock season), hunt for trades offering 4:1, 5:1, even 10:1. It’s not just about stacking wins. It’s about making sure a few screw-ups don’t nuke your account.

And, please, stop using percentage-based stop losses—algos feast on that stuff like sharks at a feeding frenzy. Instead, pick your stop-loss spots based on actual chart levels, where it’d make sense for the trade idea to die. Use your eyes, not a calculator.

Last but not least: know how much risk makes you break out in hives. Your buddy might be cool risking 5%, but you might lose sleep over 1%. Stay in your lane! Blow up your confidence… and your balance… and you’re toast.

Bottom line? You don’t have to nail every trade. Just protect your dough, stick to the basics, put some hours in with simulators, and don’t go rogue every time you think you’re psychic. Discipline isn’t sexy, but it keeps you in the game. At the end of the day, trading is about staying alive in the arena—not going full Icarus. Want to last? Respect the risk. Always.

 

[kerryjoy]

When it comes to trading, risk management is truly revolutionary. I've come to the conclusion that day trading without adequate practice is essentially a recipe for failure—the thousands of hours that professionals put in are no laughing matter. With that strong 3:1 risk-reward ratio, swing trading seems much more sensible for most of us just starting out. It's crazy how the major players can take advantage of those percentage stops, so I'm all for avoiding them too. To be honest, it seems like the best course of action to learn the proper way from the beginning. Trading requires skill, patience, and prudent risk management; it's not a quick fix.

 

[Professional Writer]

Risk management plays a really big role in many ways. For example, risk management can help a trader manage their losses in an effective manner. They can limit the amount of investment and never invest the whole amount of money all at once. This means they can limit their lot size while investing in the market. Volatile markets can be really unpredictable. Therefore, creating a better risk management strategy is always very important under all circumstances. Unfortunately, many people never focus on this and they end up losing money.

 

[Oluti]

Risk management is essential but not as important as having a trading strategy with a positive expectancy.

If you have a positive expectancy, then you can focus on risk management.

But risk management is “complicated” and depends on several factors.

We recommend trading many trading strategies that trade both market directions (long and short), trade different asset classes (stocks, bonds, and gold, for example), and different time frames (day trading, swing trading, buy and hold, etc.). You want to be diversified so not to have all eggs in the same basket.

Judging your risk tolerance is impossible until you are in a drawdown. Using hindsight bias in a backtest, you can easily say you would have tolerated a 50% drawdown. But the reality is that most traders can’t even tolerate a 20% drawdown. Do you stop or sell after a 20% drawdown? You can’t tell until you are in that situation.

 

[TOM88]

I have personally witnessed the importance of risk management in trading; without it, even the best setups have the potential to quickly blow up your account. It makes sense to start with simulators since they allow you to develop your skills without experiencing the pain of actual losses. I like swing trading because it strikes a balance between patience and activity, and it has a more lenient learning curve than the harsh grind of day trading. The 3:1 reward-to-risk ratio is more than just theory; it serves as my compass and keeps me disciplined in volatile markets. Above all, knowing your own level of risk tolerance helps you control your emotions and trade sustainably. It's always better to learn first than to dive right in.

 

[Professional Writer]

Risk management in trading is a way to ensure that money is not lost extensively but rather a minimal amount is lost. The traders have a lot of ups and downs because the markets can be very dynamic and the changes can be sudden and without any indication. The usage of risk management, they determine the amount of money they can lose on each trade and also they limit the losses to a certain level. This, in turn, makes their money safer over a longer period.
Good risk management is just same as working out beforehand before executing a trade. Traders are employing several methods such as placing stop-loss orders which are a kind of automatic selling if the price decline is beyond a threshold. In this way, they do not get affected by their feelings and the losses stay within the limit. By managing risk it also means that the money is distributed in such a way that if one trade goes wrong, it will not affect the whole investment.
In general, risk management in trading makes it less hostile and more consistent. It is a tool which suits the traders in staying for a longer period of time, learning from their mistakes, and growing cautiously.