We have spent many weeks talking about how we enter into a position, but what about where we 'Stop Out' of our trade? One of the most important aspects of trading is respecting our Stops or Stop Losses. 

• Stops are a predetermined price point that we will exit our position because it is going against our long/short position

• Stops allow us to be consistent in our trading

• Each time we trade we should be risking the same amount of money each time (e.g. $10 per trade, $20 per trad, $200 per trade)

• Typically, we want to use 1%-2% of our entire portfolio as risk 

  • • e.g. $100 account, $1-2 risk

    • 1-2% of our portfolio allows us to trade 50 times before we have nothing left. Hopefully, before you reach 50 straight losses you have learned from your losses to start making gains.

    • For smaller accounts you may need to adjust your risk to 3-5% when you get started (e.g. $100 x 5% or $5)

    • Consider stocks or ETF's that are cheaper and do not move as quickly as more expensive stocks. This gives you time to practice and watch the movement of the stock.

    • When we are talking about risk, that does not refer to how much we can spend on a share (see position sizing), but rather how much we are willing to lose on a single trade.

    • By being consistent with your losses per trade, it also enables us to take advantage or our Risk:Reward. 

    • We cannot be consistent if we are losing $50 on one trade, $100 on the next trade, and $20 on the third trade.  

    • Undefined risk would be the equivalent of creating profit targets that creates profits of $5, $25, and $50. While some trades will have more profits than others, making sure you are consistent in always finding a 3:1 set up gives us the opportunity to be patient and collect 3x our risk. And, as we learned in Risk:Reward, if we always aim for a 3:1 ratio we only  need a 25% win rate to break even (e.g +$60, -$20, -$20, -$20)