RISK
PART II — POSITION MANAGEMENT
PART III — ACCOUNT PROTECTION
RISK / CHAPTER 06
Managing Open Risk
Risk management continues after entry. As price and positions change, so does exposure. Managing open risk means controlling it without letting market moves change your plan.
Every trade begins with a defined amount of risk. You know your entry, your position size, and the point where the trade is no longer valid. That gives you an initial risk number, but it does not mean your job is finished once the order is filled.
An open position is dynamic. Price moves toward or away from your stop. You may scale into the position, take contracts off, move a stop, or hold several positions at the same time. Each decision can change the amount of capital exposed and the consequences if the market reverses.
The objective is not to eliminate risk once a trade is open. That is impossible. The objective is to understand how much risk you are carrying at any moment and make sure it remains consistent with the plan you established before the trade.
Know Your Total Exposure
It is easy to think about risk one trade at a time. If you risk $300 on a position, the decision may seem straightforward. But if you have three positions open, each carrying $300 of risk, your actual exposure is $900.
The same principle applies when adding to a position. Suppose your original trade risks $300 and you decide to add another contract as price moves in your favor. The additional entry may appear to be a separate decision, but economically it becomes part of the same open position. You need to know what happens to your total loss if the market reverses and every remaining contract reaches its stop.
This becomes especially important when positions are correlated. Two different futures contracts can respond to the same market forces. They may look like separate trades while effectively expressing the same idea. If both move against you simultaneously, the combined risk can be much larger than either position suggests on its own.
Thinking in terms of total exposure prevents several individually reasonable trades from quietly becoming one oversized bet.
Do Not Confuse Unrealized Profit With Available Risk
One of the easiest ways to increase risk unintentionally is to treat open profit as money that has already been earned.
Suppose a position is up $500. It can be tempting to think you now have an additional $500 available to risk. You add size, loosen a stop, or take another marginal trade because you are “playing with profits.”
But unrealized profit belongs to the market until the position is closed. If you increase exposure based on that temporary gain, a normal reversal can turn a profitable trade into a much smaller win—or even a loss.
This does not mean you should protect every dollar of unrealized profit. Doing so can lead to stops that are too tight and prevent good trades from developing. It means that decisions about additional risk should still be based on your trading plan, not on how much money happens to be showing on the screen.
Adjust Risk for a Reason
There are legitimate reasons for changing risk after entry. Price may move far enough in your favor that the original stop is no longer necessary. Market structure may provide a logical place to reduce exposure. Part of the position may reach its target while the remainder is allowed to continue.
What matters is that the adjustment has a reason connected to the trade. Moving a stop because the market has established new structure is different from moving it because you are afraid of giving back profit. Reducing size because the opportunity has changed is different from exiting simply because the P&L number has become uncomfortable.
The same applies when a trade moves against you. Increasing risk should not become a way of avoiding the original decision. Adding contracts, widening the stop, or cancelling it entirely can transform a controlled loss into something far larger than you intended.
Managing open risk requires flexibility, but that flexibility should operate inside boundaries established before emotion enters the decision.
Every trade begins with a defined amount of risk. You know your entry, your position size, and the point where the trade is no longer valid. That gives you an initial risk number, but it does not mean your job is finished once the order is filled.
An open position is dynamic. Price moves toward or away from your stop. You may scale into the position, take contracts off, move a stop, or hold several positions at the same time. Each decision can change the amount of capital exposed and the consequences if the market reverses.
The objective is not to eliminate risk once a trade is open. That is impossible. The objective is to understand how much risk you are carrying at any moment and make sure it remains consistent with the plan you established before the trade.
Know Your Total Exposure
It is easy to think about risk one trade at a time. If you risk $300 on a position, the decision may seem straightforward. But if you have three positions open, each carrying $300 of risk, your actual exposure is $900.
The same principle applies when adding to a position. Suppose your original trade risks $300 and you decide to add another contract as price moves in your favor. The additional entry may appear to be a separate decision, but economically it becomes part of the same open position. You need to know what happens to your total loss if the market reverses and every remaining contract reaches its stop.
This becomes especially important when positions are correlated. Two different futures contracts can respond to the same market forces. They may look like separate trades while effectively expressing the same idea. If both move against you simultaneously, the combined risk can be much larger than either position suggests on its own.
Thinking in terms of total exposure prevents several individually reasonable trades from quietly becoming one oversized bet.
Do Not Confuse Unrealized Profit With Available Risk
One of the easiest ways to increase risk unintentionally is to treat open profit as money that has already been earned.
Suppose a position is up $500. It can be tempting to think you now have an additional $500 available to risk. You add size, loosen a stop, or take another marginal trade because you are “playing with profits.”
But unrealized profit belongs to the market until the position is closed. If you increase exposure based on that temporary gain, a normal reversal can turn a profitable trade into a much smaller win—or even a loss.
This does not mean you should protect every dollar of unrealized profit. Doing so can lead to stops that are too tight and prevent good trades from developing. It means that decisions about additional risk should still be based on your trading plan, not on how much money happens to be showing on the screen.
Adjust Risk for a Reason
There are legitimate reasons for changing risk after entry. Price may move far enough in your favor that the original stop is no longer necessary. Market structure may provide a logical place to reduce exposure. Part of the position may reach its target while the remainder is allowed to continue.
What matters is that the adjustment has a reason connected to the trade. Moving a stop because the market has established new structure is different from moving it because you are afraid of giving back profit. Reducing size because the opportunity has changed is different from exiting simply because the P&L number has become uncomfortable.
The same applies when a trade moves against you. Increasing risk should not become a way of avoiding the original decision. Adding contracts, widening the stop, or cancelling it entirely can transform a controlled loss into something far larger than you intended.
Managing open risk requires flexibility, but that flexibility should operate inside boundaries established before emotion enters the decision.
KEY TAKEAWAY
Risk management continues after the entry. Know your total exposure, treat unrealized profit as unrealized, and change your risk only when the structure of the trade gives you a reason to do so. The goal is not to eliminate uncertainty—it is to keep your exposure controlled while the trade develops.