At the outset let me state the blatant truth – “You can lose your entire capital in trading”. There is a tremendous amount of risk involved while trading, be it Day or Positional trading. I am not including Long term passive investing here as the primary focus of this blog is Day and Positional Trading.
Note – In the course of this post, henceforth, trading would imply Day trading unless specified.
The markets are plagued with uncertainty all the time. You have a lot of the so-called experts shouting their guts out where Nifty is headed next. Everyone wants to know when the Sensex and Nifty will hit new highs. Retail investors who have burnt their hands in the 2008 carnage are itching to get in the market. No one knows when is the right time. Often, what is perceived as the right time, turns out to be the worst time to get in. This has been happening in the market since centuries and it will continue as long as humans have emotions.
So how do you Accept and Respect risk???
You accept risk by understanding and imbibing the thought that the market can swallow your entire trading capital. That is the maximum loss you can incur at any given point unless you bring in more capital.
You respect risk by following proper money management. Placing Stop Loss for each and every trade you take. Trailing your Stop Losses once the trade moves in your favour. Not over leveraging on your trades.
To be a money-making trader a.k.a Boring trader you have to accept and respect risk. If you don’t, trust me you will find it very difficult to accept that you don’t have any capital left to trade.
To safeguard trading capital your trading plan should include proper risk and money management plans. Never go overboard vis-a-vis your trading capital. The adage “We live to fight another day” is apt for trading. It requires a ton of Discipline and practise.
So the next time before putting on a trade ask your self if your risk and money management permit it. Is the risk you are taking worth the profit potential? If the answer is a resounding YES, go ahead with the trade or else abort it and look for the next best opportunity.
Once you accept and respect risk, your trading will elevate to a whole new dimension.
To your Boring Success!!!