Risk Management, Risk Control, Discipline, Trading Plan, Money Management, Trading Approach, Trading System, Swing Trader, Investor One of the most important factors that needs to be effectively managed when operating a successful trading business is risk. In this article we will discuss just what risk entails and why it is so important to control.

A sound trading system or approach is absolutely worthless without a method of managing money. It is very important that a trader does not focus on how much money they can make on a trade, but rather think about how much money they can lose if they are wrong. If a trader does not feel comfortable in a particular position they are in, then they should definitely let go of that trade.

Risk Control is the single most important factor in successful stock trading and investing.  The primary purpose of risk control is to protect capital. The only way to guarantee survival in the market is to minimize losses when they occur. Most traders who lose it all start off by ignoring risk, and then wind up taking greater risks in their attempts to get out of trouble.

There is a variety of ways to reduce risk, including stock selection, asset allocation, proper diversification, employing option strategies and the timely raising of cash reserves. For example, for a swing trader, a money management strategy is the one variable that will afford the biggest edge in any approach.

Another way to effectively control risk is that once a trade is entered, the trader must continue to follow his or her rules methodically instead of letting their position management get influenced by positive or negative expectations. The bottom line is that understanding how risk can be controlled will allow the trader the freedom to make choices that enhance their trading profits.

The absolute number one difference between traders that are considered professional or amateur is the ability to control risk. Make a concerted effort to become a better risk manager in your trading business because it will go a long way in improving the bottom line. Believe me, this kind of focused effort will be well worth it and will most certainly reap huge dividends.

Happy Trading.

Jeff Neal 
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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