Portfolio & Risk Management

Before you place your first trade, there's one thing you absolutely must get right: risk management. It doesn't matter how good your strategy is or how confident you feel, if you don't manage risk, you will eventually lose more than you can afford. The golden rule: never risk more than you can afford to lose. Only trade with money that, if it disappeared tomorrow, wouldn't affect your rent, your bills, or your mental health.

A common professional practice is the 1-2% rule: never risk more than 1-2% of your total portfolio on any single trade. Let's say you have $1,000 allocated for trading. Instead of putting $500 into one trade, you'd risk $10-$20 per trade. If your stop-loss is 10% below your entry, that means your position size should be $100-$200. This gives you room to be wrong many times in a row without devastating your account.

Stop-losses are your best friend. A stop-loss automatically exits your trade if the price drops to a predetermined level. It limits your downside so emotions don't take over. Without a stop-loss, you might hold a losing trade for days, hoping it recovers, while your losses grow worse. Set your stop-loss before you enter any trade, not after. Protecting your downside is more important than chasing the upside.

Two common mistakes to avoid: overtrading and going 'all in.' Overtrading means jumping in and out of positions all day based on emotion, hype, or social media tips. Every trade has a cost (fees, spread, slippage), and those costs add up fast. Going 'all in', putting your entire portfolio into one trade, might work once or twice, but eventually it ends in disaster. Smart traders stay patient, wait for their setup, don't chase pumps, and never bet the farm. Finally, keep a trading journal. Record every trade: when you entered, why, where you exited, and what you learned.