3 Trading Principles For Risk Management; Audio Version Included🎙️
3 Trading Principles For Risk Management; Audio Version Included🎙️
From A Wall St Veterans Desk...
Audio Recorded By: Austin Daniels
Many people live paycheck to paycheck. They work hard and go to work just to get by.
As people grow older, more responsibilities start to arise in their life such as kids and relationships which make it even harder to save money and get ahead.
The unfortunate reality for many is that unexpected events occur such as car maintenance. These events often cause someone to have to go into debt to be able to pay the expense.
As a result, this only makes it harder to get ahead and get into financial comfort as now you added another bill to pay each month.
I understand, I get it, we all have been there.
With inflation high, many of you are probably struggling to save money for a family vacation. Many of you may feel stuck in life and feel that you’ll always be paycheck to paycheck.
This is why many people have come to the financial markets because the financial markets offer an opportunity, and that opportunity is…A CHANCE TO GET AHEAD IN LIFE!
A chance to see your money grow and develop. A chance to allow your money to go to work for you.
One thing you must realize though is to get ahead you have to take RISK!
Going into debt with student loans for $100,000 is a RISK. You are betting that your degree will land you a job to be able to see a reward on your investment from school.
Going to work with the hopes of seeing a big promotion is a risk. You are betting that you get promoted and a pay raise.
You get it…
You have to take risks to get ahead!
Putting your money in the financial markets is a RISK! Especially if you are thinking REWARD and NOT RISK!
I want to pass along 3 Principles I have developed over the years to help me lower my risk in the markets.
Risk management is key and as a new trader, you may be thinking Reward Reward Reward because everyone posts big profits.
This is the wrong mindset.
Here are 3 Principles for helping manage risk in the markets.
1. Trade Less, Be Bored, Be Different!
It’s unfortunate that the community of trading on social media platforms is full of people with great personalities.
They make trading seem fun.
Some of them make me feel like I am watching a tie game with 1 second left! They make it exciting!
This is a dangerous environment for many novice traders that do not have an identity because they want to be a part of the event!
Many people on Twitter and other platforms create a ‘herd mentality and as a result, they cause a “fear of missing out” for the novice trader.
One of my principles is to be an outcast or…Trade Less, Be Bored, Be Different!
I want to trade only A+ setups and this requires a lot of sitting and waiting which is BORING!
I find, when I am having fun, I am trading C setups and not A+ setups.
The big money is in the A+ setups.
I literally look for reasons NOT TO TRADE.
It is a very boring and different approach but, there are many opportunities every week and every month to make money and I want to sit and wait for those opportunities.
2. You Already Lost The Money
When I enter a trade, I already know how much I am willing to lose and I have the mindset that I already lost that money.
This way, when my stop gets hit, I get out with no problem.
Before entering the trade, I always subtract the potential loss from my account and if I do not feel okay with losing that much then I do not take the trade, or I use less position size.
Often, I see traders say, “This is a free trade now” and then they trade with fewer emotions, and they stop out at their loss because it’s free trade and they do not have the ‘fight or flight’ mindset.
If you already have the mindset that you lost the money before entering the trade, then your emotions could decrease, and you could be more prone to letting your winners run or cutting the loss at your stop!
3. Having A Thought-Out Plan
I know it sounds basic but, this is the biggest principle a trader can have.
You have to have a plan.
Listen, to put it blunt…
Before entering a trade you should know:
Why you are entering a trade
How much you are willing to lose
Having a plan is the single most important process of managing risk.
YOU HAVE TO USE MATH!
I have been on Wall Street for years, you get hired as a trader for strong math skills!
MATH MATTERS!
During your planning process, you have to calculate how the loss will impact your account and how the win will impact your account.
If the calculations don’t make sense from a reward vs risk perspective, then why would you take the trade?
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I hope everyone has a great evening!