Basic Risk Management Techniques for New Traders

Risk management deserves more respect in the trading world.

You can have top-tier trading psychology but if you put everything on 1 trade and make a mistake – your account is in jeopardy.

That being said, the best thing a new trader can do is avoid bad risk management habits early.

Have you heard of traders that continuously blow accounts? A major reason why is due to risk management habits.

Avoid the trap by following these risk management techniques:

Risk management techniques for new traders

1. Engaging in Self-Talk Before The Trade

Ask yourself these questions before taking a trade:

• Am I comfortable losing this trade?

• Do I put my account in danger by taking this trade?

• Is how much I’m risking part of my trading plan?

• Am I engaging in revenge or emotional trading?

If any of the answers you have indicate you shouldn’t take the trade, sit on your fingers and rework your risk management plan.

2. Get a Cosign

Speak with experienced traders about your risk management strategy and get feedback. They can properly advise you on how to better your approach. If you don’t have access to experienced traders, you have access to AI – ask ChatGPT about the pros and cons of your risk management strategy.

3. Check Your Gut-Feeling

Let’s say you bypass the self-talk questions but have a negative feeling before taking a trade. That may be a sign of risking more than you should. The last thing you want is to risk more than you can handle – you’ll experience a rollercoaster of emotions during the trade and could be triggered to divert from your trading plan.

4. Risk Between 1-5%

The smaller the safer. If you think 1-5% is too small and something like 20% is fair, take note of this – it’ll take losing 5 trades in a row to blow your account. You want as much breathing room as possible. Especially, when starting new.

Most likely, your strategy isn’t battle-tested or proven to produce results as a new trader. Think about it like running an experiment. You don’t want to be punished for finding out if something works or not. Businesses risk little when testing an idea, you should do the same for your trading.

Here’s the final takeaway

Repetition is everything. Forget about profit for now and be conscious of applying good risk management for at least 100 trades. That will increase the chances of you building good risk management habits early.

Those who get tempted to over-risk almost never win long-term.

Remember that. Happy trading!