|Feature Article |
|Always Manage Risk |
nothing more thrilling than anticipating the markets and
making a huge profit off of a trade. Not only do you
feel on top of the world for getting it right, but the
feeling of security from realizing a windfall is nice
too. After a winning streak, it's tempting to let lose
and start making some big trades. Although it is often
useful to take advantage of a hot streak when you hit
upon one, it doesn't mean that you should act
recklessly. It's essential for long-term survival to
maintain discipline and manage risk.
After making a
series of winning trades, it's tempting to celebrate.
You may start thinking, "What do I have to lose? I'm far
ahead of the game. I can take a little more risk." But
it is essential that you fight the urge to trade
impulsively and maintain discipline. What is the harm of
taking big risks? You really don't know that your next
set of trades will be wins, and when you take
unnecessary chances, it's as if you are working under
the assumption that you will tend to win in the future.
No one has a crystal ball, though. Trading is about
taking advantage of probabilities. From the perspective
of probability theory, it's possible that you will
continue to win, and by making larger trades and
lowering your limits, you'll reap big rewards. But in
all likelihood, the next series of trades may be losers.
If you act impulsively or don't continue to manage your
risk, you'll tend to give back all your profits and
more. It's vital for your long-term survival to continue
to manage risk, even after a long string of successful
After making a
series of wins, it's natural to feel a little elated,
high, and invincible. One may not fully consider the
realistic possibility that a losing trade is on the
horizon. It's vital that you are a little skeptical,
though. It's nice to feel you are running hot, but it's
important to remember that your hot streak may end as
quickly as it started. Never let your guard down. Always
be prepared for your luck to change. An unexpected
defeat is often more devastating than an expected
setback, so it's wise to always be ready for a potential
loss. Many people react to unexpected losses with
extreme emotion, which may cloud one's judgment, and
produce trading errors. By remembering that a loss is
always possible, and that it isn't a big deal, you'll be
prepared, and won't be fazed when it happens.
Managing risk is
a trader's secret weapon. Don't take unnecessary
chances. Trading is a game of survival. Sure, you must
make big profits while you are running hot, but you must
avoid mounting huge losses when you are running cold.
Don't be caught off guard. Consider every possibility.
Continue to manage risk. It can go a long way in helping
you stay profitable in the long run.
Copyright © 2000-2005 Innerworth.com. All rights
reserved |To Unsubscribe- email to