Risk Management – How to Stay in Winning Trades

Let me tell you something most traders don’t want to hear: It’s not your analysis that makes you profitable—it’s your risk management.

You can have the best setups in the world, but if you don’t manage your trades properly, you’re going to lose money. So today, we’re talking about the Holy Grail of trading: how to manage risk and stay in winning trades.

The 80/20 Rule of Trading

Here’s the truth: 80% of your profits will come from 20% of your trades. Your job isn’t to win every trade—it’s to let your winners run and cut your losers fast.

With The Strat, we do this by:

1. Entering on high-probability setups (like reversals).
2. Using tight stops to minimize risk.
3. Holding trades until we get a reversal against us.

How to Use Break-Even Stops

A break-even stop is one of the most powerful tools you can use. Here’s how it works:

1. Enter a trade on a signal (e.g., 2-2 reversal).
2. Once the trade moves in your favor, reduce your position by half.
3. Move your stop to your entry price or higher.

Now, even if the trade reverses, you’ve locked in profit.

Example: Trading a Broadening Formation

Let’s say you’re trading SPY, and you take a 2-2 reversal off the bottom of a broadening formation.

• Your entry: $400.
• Your target: $410 (the top of the broadening formation).

As price moves up, you reduce your position at $405 and move your stop to $402. If price reverses, you’ve still locked in profit. If it keeps going, you’re riding the momentum.

Your Homework

The next time you take a trade, reduce your position once it moves in your favor. Move your stop to break even, and let the rest of the trade run.

In our next post, we’ll put everything together—scenarios, broadening formations, reversals, and risk management—to show you how to build a complete trade plan.