Professional Traders Calculate Risk, Not Profits
The time is 9:30am, and it is a beautiful sunny day. You have been working really hard for the past few months and are overdue for a long, relaxing vacation. These days, you know it’s hard to get out of the city for less than $1,500 dollars!
It is now 9:35am, the clock is ticking. You look at your monitor and decide that if you were to buy 100 shares of Google, and it moved just $15 you can get that dream vacation. The thought excites you so you key in your order and click submit.
The opportunity excites you beyond belief! You may get that vacation, or you may not – but either way you have just committed TRADEPRO sin!
Professional traders are more concerned with risk management than profit anticipation.
This is the reality. This is a sentence you must re-read, memorize and observe!
Let me give you an analogy that will stick with you forever. When trading, you are the parent not the child. A child is amused and excited by just about anything that looks like fun. The parent on the other hand is responsible to evaluate the risks associated with these activities and give the consent for the child to participate. Your money grows like a child, where it plays is up to you!
Before considering trading with live capital you need to have a detailed money management plan highlighting the following:
- How much capital are you willing to lose on any single trade?
- How many trades can you have opened at a time?
- What is the risk adjusted return of your trades?
- What is your entry and exit criteria?
- When will you move your stop losses and take profits to lock in gains and eliminate risk?
- How much money can you afford to lose? (Your exit strategy.)
- How do you know when your plan is working, or failing?
These are the questions you need to answer going into trading, and spend your time measuring and analyzing the risks of your trading strategy.
The money you make is a measurement of your success, and should never be the end goal or target that you set for your trades.
It’s now 9:50am, shouldn’t you be checking what Google is trading at?
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