A trader warns that a common mistake is abandoning risk management by increasing trade size out of overconfidence. Instead of following predefined stop-loss and risking a set amount (e.g., $200), traders may risk much more (e.g., $2,000), which improperly increases downside; the speaker advises setting and accepting the downside first and not enlarging position size without recognizing added risk.
And I see so many traders getting into a trade where they should follow their risk management strategy, they should follow their stop loss, they should follow their overall game plan and the one thing they alter is their size. They go into the trade and say Instead of risking $200, I'm going to risk $2,000 because I think or I'm confident this trade will go higher. We do that because we have this assumption that this trade will only go higher and we will be right. And the moment we start calculating that and the moment we start thinking we're going to be right and how much we can potentially make, it just tips everything else off from us. So next time you're getting into a trade, just say this is what I'm willing to risk. This is my downside. If I'm wrong, this is the downside I want to take. If I want to make more, I have to put more downside, which is not the smart thing to do.
