Most traders will tell you that a Risk Management strategy for trading is to setting and adhering to "stop losses." But this falls far way short of what Risk Management really is. To relegate the entire Risk Management strategy down to simple stop losses would be equivalent to saying "I am safe in my car because I have brakes." Needless to say, the "brakes" are only part of an entire system of managing risk in a constantly moving environment such as street traffic. In this sense, the markets are the same as the streets. There are far more actions we can take to minimize risk besides the brakes: there is steering, controlling the throttle, the path you take, "your trip preparation," mapping your route, the times you drive, the amount of driving you do, not driving while "under the influence," there are so many factors that affect risk levels, that we cannot possibly reduce the entire risk control strategy down to "brakes," or in the case of trading, "stop losses." How we make and lose money is the end result of our interaction with the market. If we do not interact, we neither win nor lose. If we interact too much, we assume higher levels of risk that may be "more than we can handle." Risk Management is the constant "adjustment" of our Risk Exposure based upon two primary factors: market conditions and, more importantly, our very own performance. So, how do we "adjust" our Risk Exposure? There are 3 primary ways we will talk about today.

SIZE: The most obvious answer to adjusting risk exposure is adjusting position size. How large or small our positions are, based on our account values is an immediate way to adjust. The more we expose our account, the "larger" the exposure.

FREQUENCY: How often we are in-and-out of the market. The more frequently we trade, the more we are exposed to the markets' motions over time, the more risk we assume. Also, commission costs become a factor that significantly affects risk levels as we increase frequency.

DURATION: The longer we are in each trade, the more opportunity the market has to travel, the higher our risks will be. Consider an inverse relation of Size to Duration. The smaller the size position the longer you may be able to let it work for you