Grey1
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There are two styles of trading .
The first style is when a trader ONLY seeks and concentrates on the REWARD
The second style is when a trader DOES NOT SEEK or concentrate on reward and concentrates on the RISK
The first style, I am going to call it gangster trading . A gangster trader is blinded by the reward,, just like someone who robs a bank ,, HE is blinded by the REWARD .The risk does not appear important to him ,.. he is prepared to go to jail and even get shot as long as he gets his MILLIONS out of the bank ,, He is not a business man ,, he is after a reward at any cost, , nick leeson who bankrupted the Barings bank is a prime example.. gangster trading can be the result of either THE LACK OF EDUCATION and understanding of RISK or could be due to psychological issue which many traders have .
in the second style of trading ,, ( this is what institutional traders are trained to be) a trader is RISK conscious and his reward is the by product of his excellence in controlling his RISK. His is a business man ,,, He does not look at a penny stock which might go up 1000%,, he looks into a stock which can return a risk adjusted return of 30%, He does not want to know about reward at any price unlike a gangster trader,, He is a business man ,, danger worries him ,, too much risk bothers him ,, he walks away from risky deals,, he is a survivor,
If you ever apply for a JOB as a trader they want to know how you are going to control the risk ,, they want to know about your attitude for Risk ,,, they want to know about hedging , diversification ,, they are hardly bothered about thousands percentage reward as they are not idiots and they know it cannot be achieved with out taking excess un acceptable risk ,,
ok so what has this got to do with day trading and you as a trader,
Answer:-- a lot
Within a most simplistic frame work ,what defines risk are
1) Entry
2) Diversification
3) Hedging
People argue that EXIT is the most important aspect of trading and i have always argued ENTRY is the most important step in trading as, if you had a perfect entry then you are having a ZERO RISK BUSINESS., Of course it is difficult to have a perfect ENTRY but the argument still remains solid,
Diversification in day trading is as important as a good entry ,,, a trader who distributes his risk over a different sectors or even different markets has less to worry about , This is risk distribution ,,
Hedging ,, a perfect hedge is always difficult to obtain but hedging is an important aspect in reducing risk ,,, try to learn this subject
One of the perfect signs of a NEW or un skilled trader is those who take 1 trade , fully leveraged and loaded and expects to out smart the market,, these trader at best take one step forward and a step back ward,, some times even MOON WALK to BANKRUPCY.
Correct education is important in this game and you must seek education to be able to make it in trading ,, you must not fall into trap of self claimed coaches with less than zero understanding of risk .
Grey1
The first style is when a trader ONLY seeks and concentrates on the REWARD
The second style is when a trader DOES NOT SEEK or concentrate on reward and concentrates on the RISK
The first style, I am going to call it gangster trading . A gangster trader is blinded by the reward,, just like someone who robs a bank ,, HE is blinded by the REWARD .The risk does not appear important to him ,.. he is prepared to go to jail and even get shot as long as he gets his MILLIONS out of the bank ,, He is not a business man ,, he is after a reward at any cost, , nick leeson who bankrupted the Barings bank is a prime example.. gangster trading can be the result of either THE LACK OF EDUCATION and understanding of RISK or could be due to psychological issue which many traders have .
in the second style of trading ,, ( this is what institutional traders are trained to be) a trader is RISK conscious and his reward is the by product of his excellence in controlling his RISK. His is a business man ,,, He does not look at a penny stock which might go up 1000%,, he looks into a stock which can return a risk adjusted return of 30%, He does not want to know about reward at any price unlike a gangster trader,, He is a business man ,, danger worries him ,, too much risk bothers him ,, he walks away from risky deals,, he is a survivor,
If you ever apply for a JOB as a trader they want to know how you are going to control the risk ,, they want to know about your attitude for Risk ,,, they want to know about hedging , diversification ,, they are hardly bothered about thousands percentage reward as they are not idiots and they know it cannot be achieved with out taking excess un acceptable risk ,,
ok so what has this got to do with day trading and you as a trader,
Answer:-- a lot
Within a most simplistic frame work ,what defines risk are
1) Entry
2) Diversification
3) Hedging
People argue that EXIT is the most important aspect of trading and i have always argued ENTRY is the most important step in trading as, if you had a perfect entry then you are having a ZERO RISK BUSINESS., Of course it is difficult to have a perfect ENTRY but the argument still remains solid,
Diversification in day trading is as important as a good entry ,,, a trader who distributes his risk over a different sectors or even different markets has less to worry about , This is risk distribution ,,
Hedging ,, a perfect hedge is always difficult to obtain but hedging is an important aspect in reducing risk ,,, try to learn this subject
One of the perfect signs of a NEW or un skilled trader is those who take 1 trade , fully leveraged and loaded and expects to out smart the market,, these trader at best take one step forward and a step back ward,, some times even MOON WALK to BANKRUPCY.
Correct education is important in this game and you must seek education to be able to make it in trading ,, you must not fall into trap of self claimed coaches with less than zero understanding of risk .
Grey1
