How Do You Handle Risk in the Marketplace?

Horse Racing

      Remember growing up and playing a board game called RISK? The object of the game was to conquer and acquire by using strategies, overcoming uncertainties, and moving across the game board with a cunning plan. Isn’t trading like that?  You desire to invest your money, overcome uncertainties (manage your risk), and win (acquire profits) by using strategies as you move through your day with your cunning trading plan. Over the years, we all have heard the saying, “there is profit in risk.”  Translated into “trader talk,” the saying becomes “the less uncertainty you feel and how well you can manage your risk tolerance will ultimately determine the rate of return of your trading success.”

      During one of my first dates with my future wife, we drove past a horse racing track.  On a lark, we stopped in to watch the action. I decided to place a position on the 1st race. As I look back on that event, I had found myself unexpectedly contemplating a trading type scenario: I needed a strategy (impress Janay) with a future-oriented goal (win the race) while reducing the risk and the uncertainty of a loss. I accomplished this feat by eliminating all risk! How? Well, I bought a winning position on every horse in the race.  My strategy and plan worked, and the date was a success; however, unlike that night (but always with trading), risk can’t be bought out! It will always be your variable in the trading equation.  How you manage that variable (your risk tolerance) will make a big difference with the success of your trading results.   Here is a short list of a few ideas to reduce your fear of risk.

      1.  How is your motivation?  If your past performance makes you focus on losing trades rather than your successes, then your fear of risking money on future trades will increase.  Change your perception by spending time with your practice account. When you see profitable consistency, return to your live account.

      2.  Are continuous little trading errors psychologically affecting your risk tolerance? Take notes on your recurring mistakes and take steps to correct the issues. You are a professional trader, so take the steps necessary to eliminate those problems. They can be corrected, you know!

      3.  How is your computer working?  Most of us are efficiently trading online, but does your computer lock up, run slowly, or crash during a trade? This can lead to uncertainty in placing entries and exits and in your ability to access risk correctly.  Clean your registries, tune up your computer, and make sure you understand how to use it. This will surely help with your risk management.

      4.  Have you done a check up on yourself lately?  Is greed getting into your trading room?  Can you cut your losses when your stop is hit?  Are you running your trading as a business or as a get-rich scheme?  Do you still desire to learn, remove self doubts, and weed out weakness?  These will all help with reducing risk.

     If you invest your energies into overcoming fears and uncertainties, then your risk tolerance will lead to correct risk management.  In turn, this will allow you to calculate the risk of your future trades with authority and confidence. You will no longer see trading as “no pain, no gain.”  It will become “no pain, no pain,” and then you will find the profits that are resting just inside the risk.

About the Author Todd Mitchell

Todd Mitchell is the CEO & Founder of Trading Concepts, Inc. He's been trading since 1994 and has mentored over 12,000 traders from Wall Street to Main Street. He's an expert at developing strategies for creating more consistent daily, weekly and monthly income.

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