Many of my posts are marathon length, but this one will be short and to the point.  I want to teach you a useful heuristic about risk.  The issue is, for any given trade you put on, how much risk should you be willing to take.  The risk you take on a given position is related to two things: the size of the position you take (in shares, contracts, etc.) and the amount you’re willing to let the position move against you before exiting via a stop order.  Generally the amount you’ll let the position move against you is determined by your trading strategy, so position size is the variable you want to adjust to keep your risk under control.  The rule of thumb has three parts: Continue reading →