The True Risks of Trading

  1. You had an argument with your spouse.
  2. You woke up with a vicious headache or a head cold.
  3. Someone you know belittled your judgment about a trade.

Tell me, after each and every incident above did you trade worse or better?

How about.

  1. You missed a target by 0.1 pip and the got stopped on the trade
  2. You hit three stop outs in a row
  3. You were in a trade when a news bomb hit and you suffered -100 pip slippage off your intended stop

Did you trade better or worse then?

Or.

  1. You watched the currency rise all night long and were convinced that it was a long bias and then it reversed all of its gains and more so./li>
  2. You been trading a set up you were sure would work, but when you did a quick backtest it turned out to be a massive loser./li>
  3. You missed a trade that was a winner and so decided to do another trade in hopes of replicating the experience./li>

Did you trade better or worse?

I think we all know the answer to that question. The funny thing is that none of the issues I raised above have anything even remotely to do with a particular strategy you are trading. Yet they can all sabotage your long-term results far more than any specific setup you choose.

Every trading guru likes to pretend that trading is logical. Just do A when B occurs and voila you will be rewarded with endless and consistent pips. It just like making widgets. Stamp them out and collect the revenue.

Of course, nothing can be further from the truth. Trading is not at all logical. Its psychological both in the market structure and in the way that the whole process works, and while we obsess endlessly about this indicator or that one, this exit level or that one -- the true risk in all of our trading lies in the day to day issues above.

Each one of those pressure points is about losing control. Indeed, the whole purpose of the market is to FORCE YOU TO LOSE CONTROL SO IT CAN TAKE AWAY YOUR MONEY.

That’s why it’s important to be aware of the real risks in trading. If you just had an argument, don’t trade. If you feel sick don’t trade. If you got stopped on a bad market break, don’t trade. But frankly, we all know that is advice that we will ignore. Nobody in life ever obeys’s DON’Ts. Not consistently anyway. That’s why the only way to combat those risks is to follow the only DO that can help you stay in control -- trade small. Angry at the world and want to punch your computer screen? Trade the 0.01 lot. You will be very glad you did. It will hurt a lot less than the 100K lot you waste on the market in revenge.

Boris Schlossberg

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