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 utilise 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 comfortable adding in, knowing that their numbers are still in the black. ….

 

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http://www.hedgefundlive.com/blog/manage-your-risk-to-preserve-your-capital

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