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Most retail traders focus on finding the perfect trade. They obsess over entries, scanning charts for the ideal setup. But professionals know the truth — making money in the market isn’t about finding the best trade.
It’s about managing risk.
If you don’t have a solid risk-management plan, you won’t last long. Even the best strategy in the world won’t save you if one bad trade wipes out weeks of gains.
That’s why institutions don’t gamble — they manage probabilities.
The Institutional Approach to Risk
Big firms don’t care about being right on every trade. They know that’s impossible. Instead, they focus on two things:
- Winning more often than they lose.
- Making more on their winners than they lose on their losers.
That’s it. They don’t try to predict every move. They don’t chase every breakout. They structure their trades so that over time, the math works in their favor.
The best way to do that is by keeping risk per trade small. Most hedge funds risk no more than 1% of their capital on any given trade. That way, even a string of losses won’t take them out of the game.
Position Sizing: The Key to Survival
If you’re trading options, you can’t just throw random amounts of money into each trade. You need to size your positions based on risk, not gut feeling.
Here’s a simple rule: Never risk more than you’re willing to lose. That sounds obvious, but most traders ignore it. They bet too big on one trade, then panic when it moves against them.
Institutions calculate risk by measuring expected return versus potential loss. If a trade has a high probability of success but limited upside, they size it differently than a trade with higher volatility.
The Power of Pre-Set Exits
Professional traders never go into a trade without knowing exactly when they’ll exit — whether they win or lose.
Retail traders, on the other hand, often get emotional. They hold onto losing trades, hoping they’ll turn around. Or worse, they take profits too early, cutting their winners short.
That’s why every trade needs two things:
- A stop-loss — the price where you exit if the trade goes against you.
- A profit target — the price where you take profits and move on.
Make the Market Work for You
The market doesn’t care about your feelings. It doesn’t reward hope or excitement. It rewards discipline.
If you build a plan that keeps losses small and lets winners run, you’ll survive long enough to catch the big moves. That’s what institutions do. And that’s how you should trade too.
Kane Shieh
Kane Shieh Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
P.S. The Shocking Truth About Where Big Gains Are Hiding
Market research shows that most long-term gains in the S&P 500 and Nasdaq happen overnight…
Not during regular trading hours.
While traders are stuck in the intraday noise from open to close, I’m focused on entering trades in the last 30 minutes of the day, capturing the move by the next morning!
