Yesterday, I told you how most traders sabotage themselves.
These mistakes — emotional trading, chasing hype, no plan, no discipline, no risk control — don’t feel big in the moment.
But a small mistake in a volatile market becomes a giant problem in seconds.
Today, let’s talk about the one thing that separates survivors from blow-ups.
If you want to stay in the game, you have to treat risk management like your job.
The goal isn’t just to find winning trades — it’s to make sure no single loss wipes out your progress. That means planning your position sizes, stops, and targets before the trade.
Teaching this over the years has shown me that most new traders ignore risk until it’s too late. Then they look for ways to “get back” money they lost through preventable mistakes.
I always stress that a smart trader thinks like a risk manager first and a trader second. That’s how you protect your capital and give yourself room to grow.
I even say it’s okay to be a coward when trading. Here’s why:
(Watch my 1-minute video here.)
Here are the same steps I teach my millionaire students that I want you to know…
Step #1: Control Position Size and Diversifying Trades
Controlling position size is one of the most overlooked parts of a sound trading strategy.
Most traders risk too much on a single stock because they want big profits fast. That only increases the chance of big losses.
You should size each trade based on your account size, not your hopes.
A good rule is risking 1%–2% of your total capital per trade. That way, even several losses in a row won’t wipe you out.
Diversification also helps reduce exposure to single-stock news or unexpected price swings.
When I started, I learned this the hard way — going too big, too fast, and watching losses pile up. Once I started sizing smaller, I had more flexibility, less stress, and better trading decisions.
Step #2: Set Up Stop-Loss and Take-Profit Levels in Advance
Having clear stop-loss and take-profit levels helps you avoid emotional decisions during trades.
You need to define the risk before you enter, not after the price moves against you. That way, you’re not reacting — you’re following a plan.
Every trade should have a clear exit strategy. Know your max acceptable loss and your target return.
This helps you stay focused on probability, not perfection. You won’t win every trade, but by controlling your exits, you give yourself consistent returns over time.
I teach students to plan their stops and targets like a pilot checks their flight plan — every move should be intentional, not reactive.
Step #3: Avoid Excessive Leverage That Magnifies Losses
Leverage might make your gains bigger, but it also makes your losses faster and more painful.
Many beginner traders don’t understand how quickly leveraged positions can turn against them. Margin borrowing adds pressure, speed, and risk to every decision.
Just because a broker offers you leverage doesn’t mean you should use it.
Leverage is not free money — it’s borrowed capital that must be repaid, win or lose. It magnifies volatility, which means your emotional control has to be even stronger.
I’ve watched traders blow up small accounts in one or two trades just because they used too much leverage. It’s never worth the risk, especially when you’re still learning execution and analysis.
Step #4: Calculate Risk-to-Reward Ratios Before Entering a Trade
Your risk-to-reward ratio is one of the most important parts of a winning strategy.
If you’re risking $100, you should be aiming to make at least $200 or $300. That way, even if you’re right only 40% of the time, you can still be profitable.
Before entering any trade, run the numbers.
Where is your stop? Where is your target? What’s the ratio? If it’s not at least 2:1, you’re risking too much for too little return.
This ratio is how professional traders think. Over thousands of trades, it’s what keeps your account growing instead of shrinking.
Does all that make sense to you? Let me know if you have questions at SykesDaily@BanyanHill.com.
Now, you can’t trade consistently without a plan — and I’m going to help you build one. Come back tomorrow for the full details.
Cheers,
Tim Sykes
Editor, Tim Sykes Daily
