Risk management: one of the areas of trading that every trader must master before they can expect to become a successful professional trader. Risk management, just like trading, takes time to become proficient. While instructing Futures classes at Online Trading Academy we always stress that becoming a professional trader will not be an overnight success. It will take time, practice, continuing education, self understanding and passion.
When I started trading Commodities it took me 4-5 years before I felt like I was getting comfortable enough to feel I could do this for a living. Of course we did not have the luxury of attending online classes, internet research, social networks to share trading ideas or mentors willing to share their trading success stories. Today learning to become a professional trader might only take 12 -18 months. Some of you might think this is too long, but be prepared for an internship and not an overnight success.
Trading is more than learning a system. Anybody can learn how to buy here and sell there, but only a professional will know how to manage their risk so that trading will become a long-term career. Part of the learning experience is understanding how each of us will react to certain situations in the market. You can read books or listen to lectures, but until you actually experience each of these situations you will never know exactly how you will react. Let’s review these three market environments that a trader must experience firsthand:
Losses – Money means different things to different people. In the end none of us like to lose money. Most of us worked hard to earn our money and surely don’t want to see it disappear. Trading is the type of career with no guarantees that you will get paid. Even worse is the fact that you can work very hard and still not get paid, this is called a trading loss. Unfortunately, until each of us experiences a trading day or week that we lose a large sum of money we will never know what our personality traits will cause us to do in this situation.
Some traders will turn into revenge traders, vowing to get even with the market. They will begin making very careless and reckless trades trying to win back their money. Meanwhile their accounts are dwindling even more because they are not following their trading plan and eventually they lose everything in the account.
Other traders will understand that something went terribly wrong and that they need to stop trading and evaluate the situation before placing anymore capital at risk. These are the traders who understand risk management.
Once a trader experiences this… Continue Reading
