Trading Educators Blog
As a percent of capital, should I go big or small?
Careful risk management is a key component you being able to trade at your best. Comfort level is really important when it comes to risk. You need to be comfortable in three areas: Emotional, Mental, and Financial. We could even add Physical to that list without having to make too great a stretch. If there is a real danger that you will lose large amounts of capital, or money that you just can't afford, you'll feel the stress. You may not even be aware of that stress. But if you limit your risk on any single trade, you will know deep down that you have little to lose. And when you know that even a worst-case scenario is of little threat, you will feel less emotion. If you are going to trade successfully you cannot afford to be emotional. Most of the better traders I am familiar with risk only a small percentage of their trading capital on a single trade, and use protective stops to further limit their risk.