5. Risk Management

“Nothing is more difficult, and therefore more precious, than to be able to decide.”

—Napoleon Bonaparte

“However beautiful the strategy, you should occasionally look at the results.”

—Sir Winston Churchill

Risk management is a topic everybody wants to know about in as much detail as possible. Unfortunately, this chapter cannot explore every type of risk management for every kind of trade. That is not the goal here. Thinking about trading is also thinking about risk; risk is another word for loss and involves how you understand, prepare, and manage losses when they happen.

Responsibility in Trading

The first lesson is to not listen to other traders about what they do or, more accurately, what they claim to do. Traders don’t ...

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