The Stock Market Code Blog

Lack of control over losses isn’t the same as lack of control over risk. Taking risks that are too big for your trading account is suicide. Failure to control trading risk springs from 2 separate factors. One is a poor understanding of probability and the other is a poor understanding of the potential downside when entering a trade. Both can be fatal to a trading account.

When we are in control of our downside and are acting with a correct understanding of probability, we have an excellent chance to survive and thrive.

The understanding of probability enables us to take risks that are unlikely to make us go broke, even if we have a long, but statistically possible, string of trading losses. By managing an account in this way, we can trade with a fixed percentage of our funds on any given trade and grow our account even faster than we would be able to if we were using a set dollar amount.

Intelligent risk control means that we always know how deep the water is, or how deep our draw down could be as we trade over a given period. Knowing this enables us to hope for the best, but plan for the worst AND grow our account as fast as possible…safely!

Most successful traders get a complete stock market education BEFORE they begin to trade.

This is the one which catches a lot of new traders. They don’t fully understand how to behave in certain market conditions until they further their stock market education. Maybe they have made a ton of money during a roaring bull market and can’t see the writing on the wall fast enough when the market turns. We all know people who have lost a lot of money during bear markets. I did before I figured out how to protect myself.

The old ways of doing things needs to change if you are in your first market cycle and a sea changes happens. What works during bull markets will get you busted out of the game during bear markets.

Market turning points throw up many opportunities for strategic adjustment and further profits. How do you use margin? How much of your account to you leave invested? Do you look for shorting opportunities? Do you sit completely on the sidelines?

These are just some of the questions that are answered with a sound understanding of the stock market basics.