I’ve been asked this question over and over again. Whenever people hear me say I’m a trader the normal response is “but trading is risky!”
Maybe it is maybe it isn’t, it depends. What is risk anyway?
Warren Buffet, the world’s greatest investor, said that risk comes from not knowing what you are doing. Maybe he has a point. Flying a plane entails some risk. Pilots do hours and hours of training before they get to man the aircraft and years before they get to be called captain. Do you think veteran captain pilots still see flying as risky? They don’t but I still do because I have no clue how to things work inside their tiny cockpit. This is exactly the same for traders. People outside trading see trading as a risky business and indeed it is especially if they do not know how the market moves or how traders use low risk ideas to profit from market volatility.
What is trading anyway and why does it seem so risky?
Basically, trading is an exchange of goods or services. Traders are speculators. To profit from trading one has to exchange one’s goods (stock, contract, currency etc.) for someone else’s speculating that the latter would have a higher value in the future. The risk comes from the speculation of the value because a trader can be right and make money or can be very wrong and lose.
In my experience it takes a lot of studying and analyzing whether it’d be technical or fundamental before I get into any trade at all. Unlike skydiving for example, you don’t need a lot of “guts” to trade but you certainly need a lot of discipline and the right mindset. Taking big risks doesn’t always guarantee big profits also. You can apply low risk trades and still win big. This is certainly what I do for myself and for my clients. We apply only 1% risk per trade and limit our exposure with only a certain number of trades at a time. This doesn’t mean we only gain 1% at a time in fact risking 1% of our equity in a single trade can yield a 3%-10% or more profit in the long run.
So is it possible to win big while limiting your risk?
Yes it is!
Now, I can’t explain all the details of how to look for low risk ideas for trading in just one blog post. But at least now you have an idea how trading can be not as risky as you think. Here is a tip – look for good position sizing strategies and money management rules for trading in the web there are hundreds of articles that can help you. You can also feel free to contact me and ask stuff about trading and I will gladly respond with the best of my ability.
Remember trading is speculating. The risk is real but unlike a casino the odds can be in your favor. We are dealing with uncertainty and the only thing that we can control is our risk not the market, not other people and sometimes not even our own emotions. This is the cornerstone of great trading.