Measure your trading risks first before you do something stupid
Put yourself in my position standing at the bottom of the Bungee Tower.
Here’s what you see…
You see a tower over 50 metres high and with these thin ropes.
Would you take a risk and Bungee Jump, knowing this?
When you initially analyse the risks, you can clearly see that this is not safe.
Same with trading Forex. Would you trade Forex if you knew you had an 80% chance of losing your portfolio? No!
But I jumped to conclusions too quickly. As I signed up to rock climb, I saw one of the Bungee worker’s test the Bungee. I saw a lot more security than I thought.
For one the ropes where THICK and completely different to the ones dangling on the ground. You can see
this on the right.
Second, he not only had his legs tied, but also he had a rope locked onto his chest harness as well.
This means he had a lot of leverage to keep him safe.
And when I saw this, I realised the risk was reduced over 98%, I upgraded from Rock Climbing to Bungee jumping.
And this made me reflect on trading.
When you deposit money into your portfolio, you need to know the probability of losing your entire account.
If the probability is over 98%, then there’s NO point even trying. You have a higher chance flipping a coin or playing slots than making money trading.
But nowadays on your trading platform, you can choose the risk you want to take.
First you need to look at how much you’re willing to lose with each trade.
Let’s say you have a R100,000 trading account. The maximum you’re willing to lose in your trade is R2,000 or 2%.
When you only risk 2%, it means you’ll still have 98% of your portfolio to trade and work on.
And if your portfolio drops to R98,000, you’ll only risk R1960 (2%) with the next trade.
And if you carry on, you’ll realise that you can take over 50 losers before you even remotely blow your account.
Taking the leap is like taking the trade
You have the harness tied to your chest. And you have your legs strapped on by the thick Bungee Rope.
Your risk for things to turn sour is a tiny 1% or 2%.
Take the leap and enjoy the safe ride down. Or be scared and turn away.
The problem with turning away is you still have to pay the R350… No Refunds!
So rather, take the leap and enjoy the reward.
Same goes with trading.
Once you have your winning trading strategy
lined up with your entry and exit levels, you just have to wait for that opportune moment to TAKE the trade.
Now you know the max you can lose is R2,000. And the max you can gain is R4,000, R5,000 or even R6,000 depending on where you place your take profit level.
Why you shouldn’t forfeit a trade
If you forfeit and don’t take the trade, there are a number of things that will happen on the negative side.
You’ll lose confidence in your strategy and you will not take trades when they line up in the future
You’ll go against your trading strategy because you think you know better
You’ll be too scared to take the next trade and you might give up on trading all together So, in conclusion…
First weigh up the risks and rewards with anything you do in life. Once you’ve made a decision, have the confidence to just DO IT.
Nothing in life comes without some degree of risk.
“Wisdom yields Wealth”