Mastering Risk

Trading is like a real-life drama where you play the lead role. Most traders lose money when they trade the stock exchange. There are countless reasons why this sad ending is so consistent. The only real protection you have against this is your common sense. You will not win by being swift or by trading more frequently than others, but by being the most prepared. Unless you trade with self-confidence, and trust yourself fully, you will not be able to trade successfully. When under pressure, this is even harder.

The market is consistently changing, and generates fear within everyone. You can’t manage fear, but you can manage the terms of engagement. I you doubt your abilities, you will feel confused and fearful. You will have to know, and trust yourself in order to confront you illusions.

80% of trading is psychological. Only 20% is technical. The process of confronting your psychological problems is a very difficult and time-consuming challenge. To be really successful, you will have to face these facts. Are you trading currently? If so, learn all you can, as quickly as you can about risk, and money management. Risk is the probability that a trade, or a number of trades will result in a loss.

You might have a firm grasp on technical analysis, and the numerous indicators out there. However, this counts for little in the final game of share trading. The challenge is to stay in the game. This requires very strict risk management techniques. Take responsibility with the actions you take while share trading. Do not run or hide from fear. Keeping your fingers crossed, or ‘hoping it will bounce back’ is not a good strategy.

Limit your Risk

Risk Management in Stock Trading
Risk management is the most important aspect of investing, and trading. It is also known as money management. You will need to develop a strict and disciplined approach to minimising your losses before you start dreaming about raking in the millions. Good risk management will limit your losses on each and every trade. You cannot survive in the stock market without limiting your risk for each trader. Before you focus on profits, you must concentrate on reducing your losses first.

This does not mean that you should never take a loss. This can have a disastrous effect on your capital. You cannot eliminate all risk. You need to balance the risk against the potential reward. Without any risk, there can be no reward. You need to avoid trading with unnecessary risk. But you should not pass on a trade because there is risk involved, and miss out the opportunity to profit from it. Good risk management can help you confidently grab potential profitable opportunities when they arise. Do not see risk as just protecting you from danger. It can also be used to shift the trading odds in your favour.

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