What’s Your Trading Risk Assessment?


Simpler Trading Team

2 min read

Just like there’s no crying in baseball, there’s no sport in trading — it’s a business.

And, any gambling should be left in the casinos (if they reopen).

Traders with a business mindset use probabilities and statistics in their favor. This is coupled with technical analysis based on past patterns and market behavior to determine setups for trades.

A critical step to trading as a business is defining risk — risk assessment. This requires defining the rules that outline our risk parameters.

It’s always risk first, profits second.

A well-defined risk assessment produces goals that include becoming a better trader, holding onto cash, and living to trade another day. Only then can profits follow.

Here are five elements of assessing your risk:

  • Setup — Does the trade have a defined setup where there is an edge? Emotional trading is a no-go. No setup? No trade.
  • Position Sizing — Don’t risk more than you’re willing to lose to “take a stab” at a trade. Know the percentage (sizing) of your account that you’re risking on all trades.
  • Focus — Know your profit target and stop loss on each trade. Know where to exit if things go right, and if they go wrong. Define these levels, and be disciplined to stick to them.
  • Manage — Understand clearly how many positions you can reasonably handle at one time to trade well. Will another position push you beyond manageable limits? Meticulously selecting fewer trades is better than overtrading — losing track of trades and making unnecessary mistakes.
  • Exposure — Be keenly aware of overall exposure (risk against your account). Avoid concentrating risk too much in a specific sector or dependent on a market direction.

When trading is treated as a business, there is an acceptance that any trade can go for a loss.

Understand that anything can and will happen. Always be prepared.

It’s a business-minded assessment.

We Saw: Markets pushing to the upside despite pandemic — 

  • Businesses, consumers ready for comeback
  • Oil trying to stumble forward, but slipping
  • Nasdaq turning positive for the year

We’re Watching: … short-term bullish opportunities —

  • Solid opportunities, profits in key sectors
  • Earnings movement, alert signals
  • Setups in AMZN, TLT, WORK, ROKU, and more

Can you make gains with “boring” trades in a volatile market? Find low-risk trades in any market HERE.