Want to discover a quick and easy risk management strategy that is easy to apply to any commercial plan and is able to dramatically improve your results? Excellent!
Not to mention the loss of stop losses, which most people consider risk management. # 39; This is rather a simple tool for managing the risk in the trading business.
Effective trade requires focus and discipline. There are a number of external factors that can interrupt your focus and destroy your discipline, for example:
- Untrusted Internet Connection
- The mapping platform lost its mark
- Knocking at the Door
- 19659005] An Infant's Tear o Hungry
- Apparently too hot or cold
- Tiredness (hopefully late-night trading studies instead of alcohol and half-tired fatigue)
is not enough, many internal factors can prevent focus and destroy your discipline, which can make emotional decisions and actions rather than following the documented trading plan. You've undoubtedly experienced some of these. Internal factors include, for example, the following:
- Insecurity at entry is triggered by the price
- Insecurity at exit when the price hit the stop loss
- There is no doubt about the entry after the entry
- your stop loss
- Do not be afraid to explain another loss to your partner
- Any idea of early trading in trade just to correct past losses
Much more, but hopefully you get the point.
In a number of trading plans, one mistake is that there are no valid strategies to address these risks. So, fix this situation.
- When Risk Causes Trading Stop
- When Should Only Pause Trade and Handle the Problem or
- When to Avoid leave and trade. This is a very simple risk management strategy developed by Shell, a global energy and petrochemical group. Obviously it was not created for commercial use – I just find that it works very well in this environment. (Yes, I know what you're thinking – I'm a risk management nerd!)
What we need to do is to classify your current trading in GREEN, AMBER or RED. Think of a series of traffic lights. GREEN indicates that everything is OK. This is the desired commercial environment. RED is a mandatory STOP condition. And AMBER is a warning that needs to be set up for shutdown.
What do I want to consider is to document the terms of RED within the commercial plan. This may include factors such as:
- Untrusted Internet Connection
- Map Builder Lost Sign (No Alternative)
- Less than six hours of sleep tired last night or more than four consecutive nights sleeping less than eight hours (you can personalize it according to your needs)
These are mandatory STOP trading conditions. In addition to these risks, you must determine the steps you take. For example, how will you handle the dropout of the charting platform? If you are a long-term trader, it does not cause too much stress, and in fact more than one AMBER, rather than RED, may be stops in the market, and there are probably other alternatives. However, if you work on a daily basis as a daily dealer, this is clearly a RED criterion. You can choose to do so by contacting the agent through the phone and closing all positions.
So, for any risk we define as RED, we simply document a procedure to deal with the situation. And if one of these circumstances occurs during the trade, then proceed to the procedure and stop trading until the condition is over.
Now everything else that is not as serious as a RED but it can still affect our trade is an AMBER. Is the problem here, as mentioned earlier, when is it justifying a stop or where should we continue trading?
The Three Risk Management Strategy simply states that if you get three or more AMBER terms, then this is also an automatic shutdown. At that point you can either exit the living room and the golf course, or treat the AMBERs to GREEN and resume trading.
So if your baby's teeth are not going to stop crying, as your partners try to calm you down and lose your second loss for the second time, three AMBER.
Before continuing, make sure that the risk is handled green or at least three AMBERs. Sometimes take a break from reviewing the two losses and confirming that the settings are valid, check your trading statistics to confirm that the two losses are normal occurrences and short relaxation and visualization work. If you are more courageous than me, you can even ask your partner to pick up the baby for a driver (ask for it!)
If you're happy that you've handled the situation in less than three AMBER now or ideally, you can start trading again. Otherwise take off your day off. Sometimes one or three AMBER & # 39; the complete break of trade is a wise move.
While we all hope that trade is happening in a completely green environment, life just does not like it. The Three Risk Management Strategy provides simple guidance to be sufficient – and you need to complete or reduce some of your external or internal risks. Try it and see if it will help you trade as much as mine.
- GREEN is GO,
- AMBER CAUTION
- and RED STOP, but  3 AMBER is equivalent to a RED. Stop trading or handle these AMBERs on GREEN.
Happy (hopefully GREEN) trading,
© Copyright 2008. Lance Beggs. All rights reserved.
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