Have you tried trading before and are you ready to give it up?
If you have been trading in the markets, you know that there is a lot of money involved, but how much do you really know? You may be putting your money at risk and not knowing if you have been doing it correctly.
The article will provide you with the knowledge to build your trading account back up.
How to Avoid Getting into a War?
Successful traders are able to identify and execute a trading strategy and understand their trading psychology, which all combine to form a trading system.
The Money and Mind pieces are the most important of the 3 pieces because if you aren’t focused on money management and making it a priority you are not going to be able to get your technical trading strategy working. It is essential to be in a good mindset to be able to take advantage of technical trading opportunities.
You should ask yourself one question before you start investing: do you want to lose money? This is the question most traders fail to ask themselves and as a result they lose money.
Never Leave the House Without These 5 Important Things!
If you are a day trader, you should have a stop loss and take profit placed in the event of a loss. This is a level at which you will sell your position, even if you are not losing money, you are still losing capital. This is to avoid the loss of more capital than you had at the outset. This means that you are protected in the event of a loss.
If you are planning to start trading live with real money, you should have a trading plan in place. You must have a detailed trading plan that covers what you are risking per trade, how much money you are comfortable losing on any given trade and what is your trading edge. If you don’t have a trading plan, you are not trading for real. Trading without a plan is trading without a compass, it is very easy to get lost in a sea of random trades.
Why Being A Good Trader Isn’t Enough…
The main reason for trading losses is due to leverage. The risk of leverage is the chance that the investment or trade will fail. The more leverage you take, the more likely that the trade will fail. Leverage is used when you are buying and selling in a currency pair.
Some people are able to predict the future movements of markets, but many of them fail to last long enough to make a significant return. A good trader is one who has the mental ability to manage risk and control their risk capital and market exposure and who does so consistently on every trade.
You do not need to be a “somebody” in the market. If you want to be successful, you need to learn how to trade and do it over and over again. If you want to be successful, you need to learn how to trade and do it over and over again.
The Advantages of Risk Management.
When you are trading, you should be managing your risk. It’s the most interesting part of trading.
It is important for traders to learn how to manage risk. If they don’t learn how to manage risk, they are likely to lose a lot of money. Traders should be focused on learning how to manage risk and should never be ignorant of this power. Managing risk should be the first thing that they learn.
Risk Management Is Powerful
Most traders have a short time horizon, they spend their money as soon as they make it. This means that they often find themselves losing money before they have an opportunity to make it back.
- Here are two ways you can make money as a trader:
If you are taking a loss, but have a maximum loss amount you are comfortable with, then that loss amount will be below that figure. - Make sure that you don’t trade your edge for too long, so that you have some bigger winners between your smaller losers.
Most traders over-complicate the whole thing and shoot themselves in the foot over and over until they have no money left.
See what is going in the image below and understand it and then IMPLEMENT IT IMMEDIATELY in your trading.
What the graphs below are showing is that:
- Winning percentage is not that important. In the example below, the win rate is about 20% and the trader still made money! How? Properly managing risk capital. Notice how all the losses are the same amount but some of the winners are 4R or 6R? This is what a winning trading performance looks like. It’s also fine to have some 2R winners mixed in as well.
- You need to have a mental obsession with capital preservation. You have your maximum 1R dollar risk amount and then you have to decide how much money you want to risk on any trade at that 1R max OR LESS, but you NEVER go over it. You will see in the image below the 1R max was $100 per trade.
- Yes, there were more losses than wins, by quite a bit, but because the capital management / preservation was SO consistent and disciplined, the winners more than took care of the losers!
Let this example serve as wake up call to those of you who don’t practice disciplined capital preservation.
How do you actually manage your money?
Risk / Reward
Risk reward is a measure of how much a trade is worth in the eyes of the trader. If it does not make sense, then it is not a good trade.
Stop Loss Placement
Stop loss placement is an essential part of risk management. It can be used to limit your exposure, and can be used to control your losses.
Position Sizing
You are taking a risk in every trade. The size of your position determines how much you risk on a trade. The stop loss distance determines how far you risk from your initial entry price.
Profit Target Placement
If you want to take more control of your business, you need to understand the concept of profit targets. It is important to keep in mind that the entire process of profit-taking can be made overly-complex.
The Psychology of Trade Exits
You need to understand the psychology of trading so that you can exit trades successfully.
Final Thoughts
Trading strategies, trade entries, technical analysis are all important but not enough. You need the right fuel on the fire to make money in the markets. That “fuel” is risk management. You must understand risk management and how important it is and how to implement it in your trading.