Money Management & Risk Control - Part 2
There really are a lot of ways to make
money in the market. There are tons of seminars you can pay for that
will tell you "How I made $1 quadrillion dollars in the stock market"
and its sister book "How I Double my Money Every Hour" is available in
many different forms too for only $29.95. All of these will tell
you some patterns that will work sometimes and won't others. Some might
have you going long with Jimmy Rogers, while others will have you doing
it with Bernard Baruch, but when it gets right down to it the most critical
part of making money, is not losing much. Your always going to take stops
and lose some. But you don't want to lose much, because you won't
make a penny tomorrow if you go broke today.
One of the most common mistakes traders
will make is that of "risking the whole wad". There is not a faster way
to have bad things happen to you than to do this. Studies have been
done that suggest the most you should risk on any one trade is 2%. And
most pros will tell you that is way too much and they risk 1/4 % to 1%
on each trade. The idea here is that no one trades is going to really
effect you either way. You're not going to get rich, but your also not
going to have to sell the house, as has happened to people.
One other benefit of small positions
is that it allows you some freedom from worry. If you are risking a fairly
small amount, your not going to get shaken out. You're also not going to
find yourself in a position where you say "Shesh, I can't lose this much
money" and you turn bad trade into a terrible investment. So, if
you are serious about this, if you want to make it long term you will practice
sound money control. Before you ever enter a trade, the first thing
you should ask yourself is how much am I risking here because, remember
that while we are here to make money, we won't make any if we go broke.
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