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Manage your risk by setting stoploss orders and controlling your position size from "summary" of How I Made BIG Money Trading Stock Options by Carl Schoner
To trade options successfully, it is crucial to manage your risk effectively. One way to do this is by setting stoploss orders. Stoploss orders are predetermined points at which you will exit a trade to limit your losses. By setting stoploss orders, you can protect yourself from significant losses if the trade does not go as planned. In addition to setting stoploss orders, controlling your position size is another vital aspect of risk management. Position size refers to the number of contracts or shares you trade in a particular trade. By controlling your position size, you can limit the amount of capital you have at risk in any given trade. This can help prevent catastrophic losses and ensure that you can continue trading even after a series of losing trades. When setting stoploss orders, it is essential to consider the volatility of the stock or option you are trading. A more volatile stock may require a wider stoploss order to account for price fluctuations, while a less volatile stock may only need a tighter stoploss order. By adjusting your stoploss orders based on the volatility of the security, you can better protect your capital and minimize losses. Similarly, when controlling your position size, it is essential to consider your overall risk tolerance. If you have a low tolerance for risk, you may choose to trade smaller position sizes to limit your exposure. On the other hand, if you are comfortable with taking on more risk, you may opt for larger position sizes. By aligning your position size with your risk tolerance, you can trade more confidently and avoid emotional decision-making.- Managing your risk by setting stoploss orders and controlling your position size is crucial for successful options trading. By implementing these risk management techniques, you can protect your capital, minimize losses, and trade with confidence. Remember to adjust your stoploss orders based on the volatility of the security and align your position size with your risk tolerance to trade effectively over the long term.
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