You won’t always win.
You won’t always be right.
“Risk” isn’t just a word!
Everything we do entails some risk. The risk spectrum varies from minimal to suicidal. Our natural instinct is to minimise risk – but sometimes we embrace it for additional reward. The reward might be an adrenalin rush, the esteem of others, money, or (preferably) all of the above!
Futures day trading is the extreme sport of the financial world. It’s high risk for high returns.
It takes courage to succeed in an extreme sport, but paradoxically you also have to be ultra careful. You don’t leap off a tall building without first meticulously checking your gear, checking the weather conditions, honing your technique through practice and training. Even then, when you have to act, the unexpected can still happen – and the consequences are serious!
The crazy brave trader who enters positions casually is going to take a dive as soon as his luck runs out.
Most people understand this about gambling. If you announced that you were going into the business of professional gambling, you wouldn’t get a lot of encouragement. That’s because people know that when you visit the casino or race track, the odds are against you.
You may be lucky for a while, but eventually the day of reckoning comes. Sooner or later the laws of probability assert themselves by transferring your capital into the casino’s coffers. Casinos are well capitalised and can comfortably ride through your winning streaks, but you quickly succumb to theirs!
Trading is gambling. It may be more respectable, and to some people it sounds like rocket science, but really it’s gambling and you are a gambler. You place a bet on something happening in the unpredictable future. If it happens, you win. If it doesn’t, you lose. That’s gambling.
The difference between the trader and the casino gambler is that a seasoned trader gets to design some of the game’s rules, and, to some extent, set the odds. The trick to being successful is to design a game where the overall odds are in your favour, and play it repeatedly. But make no mistake, you are still a small player in a big game, so there is always the chance that serious bad luck can kick you out – this IS extreme sport!
The key to living a long and healthy life in this environment is paying attention to risk. You must analyse every aspect of your activity and ensure that everything that can be done to minimise risk IS done. You must never be tempted to take on extra risk based on a whim or spur-of-the-moment gut feeling.
The beginner is focused on the euphoria of winning trades. The professional is constantly aware of risk and working to minimise it. One of the most important aspects of risk management is learning how to manage losing trades correctly.
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