“No pain, no gain.” “No risk, no reward.” In order to achieve success and realize your dreams, you must take on risk and manage it properly, despite the biases of your previous experiences and your personality. Some of us love risk while others hate it.
Assuming the right amount of risk not only is difficult, but is very tricky. Assuming too much risk often leads to a depletion of capital and missing of key opportunities, while too little leads to unfulfillment and lack of potential profit when opportunities arise.
Finding the balance can be achieved using the following strategies:
- Work hard at understanding the basics of trading and market behavior (develop your own way to quantify market action)
- Have awareness and control over your own psychological contributions to the risk-taking process (how do you feel when you take on risk?)
- Practice and gain real-world experience through taking incrementally greater risks (start small and build up with early successes, rather than rushing in)
To take on risk successfully implies
- acting outside the vicious cycle created by fear which wrecks havoc on your confidence and mental preparedness
- creating goals and acting out of those goals, rather than temporary emotions which will inhibit you and soon pass
- following an action plan outlined through personal study and research
- overcoming internal inhibiting beliefs based on previous experience (cleansing yourself from the weight of negative memories)
- managing assumed risk in an honest, open, and creative way
Ideally, you must arrive at the point where you choose your risk not out of fear or greed, but by creating a powerful, enabling framework of opportunity and excitement to execute your trading method. This would imply identifying what patterns you are most suited for trading (can recognize easily), taking each opportunity you see, and managing the risk of the trade by carefully designed methods that work for you and your risk-tolerance preference.
Scan only for the data points and situations that create market movement. Don’t bog yourself down in too much detail or overanalysis. Find “inflection points” or as I call them, “Technical Decision Nodes” where the market must move in one direction or the other, where other traders are watching these key spots along with you. Analyze what others are thinking and how their risk-taking behavior can help you determine your choice of action.
Find situations where your risk is low and your reward is high and have patience to wait for these opportunities to materialize. All you need to know is this key chart point and you can make money while others, overloaded with information, miss this sweet opportunity because they crave higher certainty.
People with less info in a focused way can be much more profitable than those with excessive information whose emphasis is on certainty and not results.