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Limiting Your Risk

Limit Your Risk
There is no substitute for experience when it comes to stock trading. Most of us learn from our mistakes, and taking a loss is the fundamental part of the learning curve. All traders start off their careers by making a mistake. It is inevitable in a trader’s life to make a loss. Most new traders lose most or all of their capital. This forces some to retire from the trading playground before they have the opportunity to put into practice the harsh lessons learnt from their ordeal. Some of these sad, but wiser traders can reflect on the lessons learnt, but cannot afford to return to the stock market. Good judgement comes after experience, and many mistakes.

Everything we do in life contains some risk. Our lives are constantly changing, making the future unpredictable. Nothing in life is guaranteed. We mentally process the odds and possibilities every day. From when and where to cross the road, to which model car we should purchase, we are already experienced at managing risk. These skills just need to be transferred to your trading system. Without a risk management strategy, the likelihood of losing your capital is almost certain.

For the few that survive the initial and painful lesson, there’s still a steep learning curve ahead. Every loss is a lesson, and will take you along the long and winding road to your success. There is no short cut to prosperity. Good traders will have travelled the long and well-trodden path to success by controlling and limiting their risk. Losing money on a trade will teach you the basics about the stock. The next time you buy it, you will be treading a known path. Familiarity will help you along the way.

If you’re planning on becoming a trader, you will need to learn how to take a loss, and keep on trading. You cannot let it affect you emotionally. Plan for disaster, because it lurks around every trading corner. Even when you’ve become an experienced trader, it is still a constant presence. If you want to avoid losing your capital later on, you must never lower your guard. You must always maintain your risk management strategy. Your investments are always at risk. Never throw your risk plans out the window, assume you’ve got enough experience to ignore the basics of risk management.

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