In the 20+ years in this business, I haven’t seen anyone who has kept profits from trading without good risk management. I know many who’ve lost quickly. If you don’t have a plan to manage risk and size your bets, it’s impossible to keep the money you make.

Here are a few wonderful tips from a couple of Tom Basso’s recent podcasts:

On the secret to his longevity:

“I would say it’s sort of two things. One is, after reading Larry Hite’s chapter in Market Wizards, I really started thinking a lot about, as he calls it, bet size, or what I call the risk exposure of each position and the risk exposure of the portfolio. That would be the first thing that comes to mind that has allowed me longevity.”

“So there’s some kind of reasonable maximum that you can logically take. On one end, there’s zero risk, which would get you zero return, and on the other end, there’s a happy medium in between that each trader must decide for themselves. It needs to be comfortable, not lead to blowing up your account, and allow you to size positions appropriately so that all positions are contributing to the potential profit or loss as a portfolio.”

“The second part of longevity is once you’ve got your position sizing and risk management correct, the next thing you need as a trader is awareness and discipline. You need the awareness to recognize when you go off your plan, and you need the discipline to put yourself back on track.

If you don’t have those two things—and you should work on both of them—start with awareness so you can tell whether you’re being greedy, wanting to cut a trade short a little too quickly, and not letting it run as you should, or if you’re upset because the last trade was a loser and you’re determined to make the money back quickly by doubling the position size just to “teach the market a lesson” or something. Those are classic problems over the long run if you have that kind of mentality.”

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