Thursday, April 23, 2015

If You Don't Spend Much, You Can't Lose Much

One of the biggest mistakes you can make as a trader is have too much money riding on a trade.
The more money you use, the more emotional fuel you are pouring onto the fire. Eventually, you are
likely to be burned... badly. And the post-traumatic stress may be irreparable.
Most beginning traders stake too much in the hope of a quick win. Experienced traders know better.
In day trading, where the trades can come thick and fast, a few big losers can eat you alive very quickly.
Good day traders who survive will risk only a tiny amount of their trading capital on any one trade.
If you're "under capitalized" then consider using a trading system which offers a tight stop loss.
Alternatively, trade a shorter time-frame, like the 1-minute chart, where losses can be minimized.
Overconfidence is the other cause of excessive risk.
"Hey... heads has come up 10 times in a row... let's put half the trading capital on tails (which is sure to
come up next) and clean up."
The problem with sure-thing trades is that:
a) The market hardly ever obliges;
b) Everyone else sees them as sure-things as well and jumps aboard. So when they go wrong, they go
wrong big-time.
Risk a tiny amount on each trade. You'll be more relaxed, and more able to execute the trade properly.

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