Successful trading is not necessarily about picking stocks but like any good business it’s about managing your money based on your ability to trade stocks. For this article I assume a sound strategy is in place. It does not end there, however.

Picking stocks is not the hard part its managing all those expenses that go into running that business and most importantly that is the management of what could potentially be your largest cost – losses.

Most costs are fixed but losses are not unless you make them fixed. So, we have a choice as to whether that cost will be large or small.

Like any good business manager, we go about working out a viable process whereby they are managed properly and efficiently. i.e. kept to a minimum and can tolerate a string of losses, or we go out of business. There will be markets that will be friendly to your strategy and some that won’t. There are good times and difficult times. It is the difficult ones that require unwavering and vigilant focus to work through them – and get to the other side – the good times.

The risk process we use must have a structure and priorities. We manage every stop each week and if triggered are exited. Sounds easy but we know better. This is why it is vital to have specific focus on your trade plan only and not let other things effect your decision making.

First and foremost, losses must be kept to a minimum and this is a factual qualification rather than an esoteric subjective thought. Knowing full well we can’t be right all the time the fact of taking losses in a stock market business is a fact and thus it follows that the essential part of that management process of that business is that we are protected from taking big losses allowing us to stay in business and be prepared for when the good times hit.

It is that key choice we make and for this process to work there is a discipline involved where if you fail to observe the risk limits you will fail to keep losses minimised and then are thus constantly struggling to come back from big losses. Not enjoyable! If you don’t want to take big losses, you don’t have to. That is a fact. You have to act when signals are triggered be it a stop profit or stop loss.

That figure you must decide, 5%, 10%, %15 of even 20% but remembering that coming back from losses is exponentially challenging.

Finding the right balance that suits you risk profile and strategy will determine where it is set but as a business manager it is such a vital part of managing your expenses that must be quantified and executed appropriately.

The choice of big losses or small is in your hands. My choice is a very manageable 15% maximum risk on any one trade.