Is your trading account hurting? Do you feel overwhelmed, frustrated and ready to throw in the towel on the whole “trading thing”? Well, today’s lesson, if properly understood and implemented, can quite possibly provide you with the knowledge that you need to literally save your trading account and start building it back up.
You’ve probably heard that something like 90 to 95% of people who trade money in the markets or “speculate” in the markets, end up failing over the long-run. Whilst there can be a multitude of reasons for this mass failure, the primary one that underlies all the other ones is typically poor or no risk management skills. Often, traders don’t even understand risk management and just how important and powerful it is.
Hence, in today’s lesson, we are going to dive into the seemingly “boring” topic of risk management (but actually it’s super interesting if you like MAKING MONEY). Forget about everything else, all the hype, all the trading ‘systems’, because I am going to explain and show you the most important piece of the trading “puzzle” as you read on below…
Don’t Start a ‘War’ You Aren’t Prepared to Win.
There are essentially three main aspects to trading success: technical ability, which is chart-reading, price action trading, or whatever trading strategy you choose (I obviously use and teach price action strategies for a variety of reasons), money management which is “capital preservation” and encompasses things like how much $ will you risk per trade, position sizing, stop loss placement and profit targets. Then, there is the mental side, or trading psychology, and all three of these things, technical, money management and mental, are interconnected and intertwined in such a way that if one is missing, the other two essentially mean nothing.
Today, we are focusing on money management obviously, and honestly if you ask me, I would say that money management is the MOST important of the 3 pieces discussed above. Why? Simple: if you aren’t focusing on money management enough and taking care of it properly, your mindset is going to be totally wrong and whatever technical chart reading ability you have is essentially useless without the Money and Mind pieces in place.
So, before you start trading with your real, hard-earned money, you have to ask yourself one question: are you starting a trading ‘war’ that you really aren’t prepared to win? This is what most traders do, and most traders lose. If you don’t understand the concepts in this lesson and that I expand upon in my advanced trading course, you aren’t prepared to win.
Never Leave the Castle Unprotected!
What good what it be for an entire army to ride out into a war and leave the castle with all its riches (gold, silver, civilians) unprotected and unguarded? That’s why there is always a defense in place. Even in today’s military, there is always a “national guard” on reserve, waiting and watching in case any country tries to attack. The truth is that humans have ALWAYS defended that which is most important to them, so why not defend your money!?!?!
You protect and pro-long and GROW YOUR TRADING ACCOUNT by defending it FIRST and foremost. THEN, you go and execute potential winning trades. Remember, “rules of engagement 101 for trading”: NEVER leave your bank account unprotected when you go out to fight the “battle” of trading. Now, what exactly does that mean to you as a trader and more importantly, how do you do it??
It means, you do not start trading live, with real money, until you have a comprehensive trading plan in place. Your trading plan should detail things like what is your risk per trade? What amount of money are you comfortable with potentially losing on any given trade? What is your trading edge and what should you need to see on the charts before you pull the trigger on a trade? Of course, there is a lot more to a trading plan, but these are some of the most important pieces. For more, check out the trading plan template I provide in my courses.