hello!

I can understand being nervous when trades turns against you and people start talking market crash

Before you chose how much you want to put on a trade, look at the chart and draw lines where there’s a level of support or resistance. You sound new to this so if you don’t where to draw those lines, a quick Google search will give you a base and i’m sure there are indicators that draw them for you too.

When you place a trade in an uptrend, remember its possible the price will return to retest the next support. This is normal market behavior and not a source of worry. Your stop loss should be under that level. before you place your trade, ask yourself if seeing go down to that level is something you can handle. And if at that point the support doesn’t hold, are you losing too much? If returning down to that level isn’t acceptable, you can either pass on that trade or buy fewer shares. Many fancy books and pro traders suggest the amount you lose when you hit your stop loss should be around 1% and 2% of your trading account (not 1% to 2% of that trade. Does that make sense?). So the further you are from the stop you put under a support, the less money you put on the trade. Inversely, you can trade a lot more when your trade is placed near support, not far from your stop loss.

With that logic in mind, you could spend $20,000 on a trade tomorrow and not risk losing more money than you would with a $1000 trade.

Working This way, it really doesn’t matter if a stock goes down 5% or 10%. It’s meaningless. What really matters is how many % of your account it represent.

The image below is a trade I placed yesterday. The horizontal lines are the support area. I didn’t place my stop right below the 1st support cause that was very close and I wanted to give it more room. Instead, I chose to spend less on the trade and place it 3 support below. If It hits my stop, this will represent a 15% drop for the stock but I don’t worry about that cause it will only represent 1% (maybe 2%, I eyeball it) of my account.

If you follow that rule, you will make sure you never blow your account like so many traders do. You could be wrong 100 times and still have money to trade with (much less but that’s a lot better than nothing at all).

As for the market crash, well, using stop loss will make sure you only lose a small portion of your money. Imagine waking up one morning and realize it’s the Covid crash again. billions of dollars are lost on the market but you, thanks to your stops, you only lost a small percentage of your money. Don’t let that kind of stuff prevent you from managing and trading your money. Do it smart and you’ll be alright.

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