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Protecting Your Account from The Unexpected

Markets are unpredictable and given the unstable geo-political climate we live in, headline risk is always a concern.

With this in mind you want to make sure you are asking yourself important questions about your risk and how you are approaching the market.

Good traders spend a lot of time and energy thinking about profits, but great traders ask themselves the same question at the onset of every single trade:

What is the most I can possibly lose in this trade in the worst possible scenario?

You’d be shocked at how many traders couldn’t answer this question for many of the positions in their portfolio.

To get you thinking about risk and losses the way great traders do, here are some questions you should ask yourself about each trade you put on.

Question #1:
Am I Considering Gap Risk?

This is something you should be asking yourself if you’re trading options or stock.

Options and equities markets do not trade 24/7. Since there isn’t an overnight trading session, any news that’s released while the market is closed can cause a large move when the market opens the next day.

This is what we call a “gap.”

Gaps shouldn’t concern futures or forex traders as much because these markets are open almost 24 hours a day, so they digest news as it comes out.

For equities and options traders, however, gap risk should always be on your mind as it can completely invalidate your stop losses.

When calculating your total risk realize that your real risk in any position can be greater than your stop loss would imply. This is very important to think about when you’re considering position sizing and should make a case for keeping some cash in reserves.

Question #2:
Are There Any Events That Increase Gap Risk On The Horizon?

If you’re going to carry multiple positions in your portfolio, you need to be aware of all catalyst events that might increase your exposure to gap risk.

That’s why you should keep a calendar with all relevant events related to your positions.

These events include earnings releases, new drug announcements, product launches, sales numbers, or macro data releases that your positions might be particularly sensitive to.

If you’re aware of all of the upcoming catalyst events that could cause a gap, you can choose to exit the trade early or adjust your position size.

Making this effort will minimize the downside risk of gap surprises.

Question #3:
Can This Trade Blow Out My Account?

You should have a maximum risk limit for every single position. If you don’t, you need to develop one for every position you’re in.

In general, you should probably avoid risking more than 15% of your total book in any single position. If you do this, you’ll never blow out your account from a loss in any single position.

No matter how confident you are in a trade, there is always the risk of a “black swan” event.

You’ve heard of this concept before…

It’s an event so unlikely that nobody would have expected it to happen.

But if you size positions correctly, you’ll never become one of the trading horror stories you hear about.

The rule is simple: Never risk a blowout in any single position.

Manage Like One Of The Greats

While profit taking and exit strategy development are important, both are nowhere near as important as risk management.

This is why the great traders are always thinking about potential losses and how to mitigate and manage them.

Shift your thinking away from profits and focus more on risk, and then you’ll be ready to trade like the greatest traders in the world…

You’ll be ready to trade like an AlphaShark.


Andrew Keene
AKA, “The Alpha Shark”

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Andrew Keene

Andrew Keene is the editor of The Alpha Shark research desk at Agora Financial. That includes the daily Alpha Shark Scanner PRO, the monthly Alpha Shark Letter and the bi-weekly CryptoShark Trader.

He’s also the founder of a seperate business called AlphaShark Trading which founded in 2011.

Andrew’s worked as a proprietary trader at the...

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