Very simple idea but this is the heart of risk management. Every trade we make sets out to be a winner, but if we do not win for any reason, we need to make sure, that we don´t lose much. There are several ways to achieve this goal.
1. We can improve our hit rate and only trade stocks we know go up or down. The problem is, that in most cases we do not know exactly whether the stock will go up or down and it is a good amount of guess work. So improving our hit rate