Yet too many beginner and intermediate traders are more interested in playing great offense first. They are more focused upon making lots of money in the markets, and not nearly interested enough in keeping the money that they already have!
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The reason that investment banks regard risk management as essential is because without it, they would go bankrupt extremely quickly. It is at the heart of both their success and survival. Hence, if it is good enough for them [url=http://www.cheapnhlcoyotesjerseys.com/oliver-ekman-larsson/]Cheap Oliver Ekman-Larsson Shirt[/url] , it should be good enough for you too.
Beginner traders have no idea of how to manage their risk, even as a concept. They put on a trade according to some poorly defined criteria, and when the market goes against them, they have no idea at what point to get out of the position and will let it worsen until it is simply too painful to retain.
The smart trader, however, places risk management at the heart of the entire trading plan from the very beginning. If you realize that in this game [url=http://www.cheapnhlcoyotesjerseys.com/derek-stepan/]Cheap Derek Stepan Shirt[/url] , the target is not only to make money, but also not to lose the money you've got, then you have made great progress before you even place your next trade.
Let's put this a little more graphically. If you were to lose, let's say for sake of argument, half of your trading capital, then you have a huge uphill task ahead of you. You will have to achieve a fully 100% return [url=http://www.cheapnhlcoyotesjerseys.com/christian-dvorak/]Cheap Christian Dvorak Shirt[/url] , simply to break even! You will have to do even better than a 100% return to actually go into profit. Now, if you realize that very few of even the sharpest hedge funds make 100% return on capital in a year, never mind all the other more mediocre players out there, you will realize what an outlandishly monumental task this really is.
Yet, if you were to ask many beginner traders, you will find that it is actually very easy to lose half your trading capital [url=http://www.cheapnhlcoyotesjerseys.com/max-domi/]Cheap Max Domi Shirt[/url] , or more, quite swiftly. You do this by placing too large a trading size in the first place, betting on ill-defined trading opportunities where your chances of winning are low, and then staying in the position for way too long when it is clear that it has gone against you and is not coming back anytime soon.
By contrast, the successful trader is very careful indeed about the sort of trading opportunities that are pursued and has done diligent research to identify high-probability trade setups. This trader clearly defines the risk in absolute dollar terms ahead of even initiating the trade, and places that limit as a stop loss against the position at the same time that the trade itself is placed. Hence [url=http://www.cheapnhlcoyotesjerseys.com/anthony-duclair/]Cheap Anthony Duclair Shirt[/url] , the trader has predefined exactly at what point in the market that the trade is a loser and has placed the exit order at the same time as the trade itself.
Another key aspect to this procedure is to limit the capital exposed to any one trade. Even following all of the above strategies would be absolutely no use if your trade size is far too large proportionate to your account size. If you enter trades where your potential loss represents one-third to one-half of your total account size, then you are almost certain to go bust within just a few trades!
By contrast, great traders ensure that their loss is not only predefined, but also small relative to their total account size. In this way, they ensure that they stay in the game. If a great trading opportunity comes up, but you cannot take advantage of it because you went bust [url=http://www.cheapnhlcoyotesjerseys.com/tobias-rieder/]Cheap Tobias Rieder Shirt[/url] , it is as good as if it had never happened. That is why you MUST play great defense, and ensure that you do your very best not to lose money.
You need to stay in the game. Remember, there will always be another trading opportunity, but only if you are still in the game!
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