Disk 4.3 Risk Management

Risk on a trade

In essence this section is about discipline and greed. Established traders will be familiar with the mantras of discipline voiced here but for those who have not traded before these are important lessons – especially about the subconscious greed built into all of us!

Making profit is as much about avoiding losses as making big profits. Trying to extract the maximum out of any trade is dangerous as you start to overstep the boundaries of proven strategies. So no matter how enticing the possibilities the lessons are always to stay within your plan, to take profits whenever they are available and to avoid losses.

Guy provides guidance with illustrations on his view of how much of your trading capital it is wise to risk on each trade, some inside information on setting stop loss levels to avoid the professionals taking advantage of you and how to calculate your maximum spend on a trade.

Spend on a trade

He closes this section with some words on trading psychology and the importance of any trader understanding and controlling their own state of mind. This is most easily controlled by developing and using a Trading Plan.

Having a plan which requires knowledge of the price levels at which various events might occur, setting up your trade so that those events produce the right results for you and covering all the possible permutations. With such a plan in place then you can approach your trading in a calm and controlled frame of mind which is the only one that is going to bring success.

Summary

As every experienced trader will tell you, being successful is as much about managing your money – and your risks – as it is about making profitable trades. This section provides not only the general guidance but specifics and rules to follow.