Why risk comes first

Summary

Traders who last are rarely the ones who are right most often. They are the ones who keep each loss small enough to recover from. A 50% loss needs a 100% gain just to get back to where you started, so large losses are very hard to undo. Managing risk is deciding, before you act, how much you are ready to lose and what will make you step aside.

Key points

• Small losses are easy to recover from; large ones are not.
• A 50% loss needs a 100% gain to recover.
• Decide what you can lose before you act, not after.

Check yourself

After a 50% loss, how much gain is needed to get back to the start?

Practice