Risk Management

Risk Management

Every trade involves risk, but some traders make the mistake of focusing only on potential profits and not planning for when the trade fails. The key to consistent profitability is managing your risk.

Even the most successful traders experience periods of drawdowns, when losses mount up and multiple losing trades are recorded in a row. The experienced trader will have anticipated this possibility and planned accordingly; risk management is essential to any successful trading enterprise.

At Bitwater, we strongly encourage members to limit their risk per trade to 2% or less of their available capital. This means that, after a trade's stop loss is hit, no more than 2% of your money should be lost.

For example, if you have a $10,000 account and you're trading with four contracts (each option contract controls 100 shares), you should adjust the size of your trade so that you only lose a maximum of $200 if your stop loss is hit.