Trading risk management strategies for overtrading and gap risks

Effective trading requires managing psychological impulses and market volatility. To combat overtrading, traders are advised to implement daily limits, take mandatory breaks after trades—especially following losses—and maintain a trading journal to track rule compliance and emotional triggers like FOMO or boredom.

Additionally, traders must account for gap risk, which occurs when prices jump over a stop-loss level due to news events or low liquidity. Because a stop-loss does not guarantee execution at a specific price, risk management must include calculating position sizes based on the potential loss if a gap occurs, rather than just the distance to the stop-loss.