Stock Trading is a Path of Learning

Risk Management
As a trader, you must stay humble, and continue learning throughout your entire life. Today, with the internet and information at our fingertips, we can succumb to information overload. Everyday, we are thrown advice from another expert. These so called ‘gurus’ claim they are only here to help, but are really after the money left in your pockets. Random advice from ‘experts’ thrown about willy nilly is no substitute for structured learning. You should not simply skim the investment knowledge floating about. You need to look deeper into each topic, and try to learn as much as you can.

Choosing the right resources and format is of utmost importance in your learning approach. The internet has the perfect lure to new investors, with articles printed daily, promising the ‘latest’ approach to stock trading. This is not the best approach. The key is to efficiently organise your knowledge. Instead of spending your time on learning tens of hundreds of ‘sexy’, ‘new’ entry indicators, you should spend your time learning about managing risk. This will help you avoid being mauled by an unsentimental market.

Trading is a long and painful journey of self discovery. Your discipline, and mental attitude will help you on your journey to success. A good risk plan involves
  • An understanding of risk management theory
  • A risk/reward ratio
  • A diversification philosophy
  • A position size algorithm
  • A maximum risk per trade amount
  • A stop-loss strategy
  • A psychological plan for losses
If you are new to trading, you need to be aware of the risks you are going to face. There is a constant stream of people online, in your work place, the train, and even your friends who believe they can beat the market odds and make their fortune. This random array of information can only confuse you, can try to divert you from your path. Even worse are the people selling trading systems for a mere “few hundred dollars”. Most of these promise instant wealth, and the lure of fortune. They hardly ever reflect on what attributes you need to become a successful trader. Remember, you have to travel the road before you reach the destination. And it is a long road ahead. So try to prepare yourself, and focus on what’s needed on the journey before you think about the destination. Spend time honing your skills, and learn from your mistakes. Before you place your next trade, think about what you need to become before you can be a successful trader.