A Great Way To Manage Risk

Came across this tweet which I thought was really good.

To rephrase it, there are basically 5 outcomes to any trade:

  1. Big win
  2. Small win
  3. Breakeven
  4. Small loss
  5. Big loss

By setting a stop-loss, you effectively eliminate number 5 (i.e. big loss).

Isn’t that great?

You have effectively eliminated the WORST possible outcome of the 5 possible outcomes of a trade.

If this isn’t reason enough to adhere religiously to your stop-losses, I don’t know what is.

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