Position Sizing and Risk Management: Lessons from Linda Raschke

Position Sizing and Risk Management: The Linda Raschke Way

Linda Raschke is a master of risk management. She understands that long-term success in trading is not about hitting home runs, but about consistently grinding out profits while protecting your capital. Here are some of her key principles of position sizing and risk management.

The 1% Rule

Raschke is a strong advocate of the 1% rule, which states that you should never risk more than 1% of your trading capital on a single trade. This simple rule can help you to survive the inevitable losing streaks and stay in the game for the long haul.

Position Sizing Based on Volatility

Raschke also uses volatility to determine her position size. In a volatile market, she will trade a smaller position size to account for the increased risk. In a less volatile market, she may trade a larger position size.

The Importance of a Stop Loss

A stop loss is a non-negotiable part of Raschke's trading plan. She believes that every trade should have a pre-defined stop loss to limit the potential loss. She is also a proponent of using hard stops, rather than mental stops, to ensure that the stop loss is executed.