Friday, September 30, 2016

Trading Risk and Reward

A common mistake among traders is thinking the markets are a quick way to get rich. This is false. Trading is very risky. If you're not careful, you can easily lose thousands or more (depending on your account size and broker setup). Even if you spend a significant amount of time practicing in a live simulated environment, live trading can be different. Each trader is different. The psychological impact of knowing real money is at stake can cause panic and unwise decisions.

For these reasons, traders should be well-funded and capable of absorbing significant financial loss. A common term among traders is, "Only trade with money you can afford to lose." This is true, as trading with money normally used for buying groceries can result in a problematic situation for the trader and his or her family. If a person has had past issues with gambling or impulse control, trading should be approached with even more caution.

There are thousands of websites that sell day trading products and services. These websites can be very convincing, either directly promising or alluding to increased performance. Remember that nearly anyone can create a website. Also, consider that there is a tendency for traders to always be on the hunt for what works. As such, trading businesses can be lucrative and prey on unsuspecting traders. Traders should perform thorough research on a company before doing business. This includes, but is not limited to, the number of years they've been in business, the analysis of any performance records, consultation with other users of the trading system, requesting a trial (if offered).

Of course, not every trading business will be able to provide all of the information to make an informed decision. Even if a trading business does provide satisfactory evidence of performance, there is still substantial risk. Why? No one can truly predict the direction of the market. Even if a trading system has been over 80% accurate historically, the next second may be the start of a year-long downward spiral in which traders lose consistently. For this reason, a trader must only use "loss-capital" he or she can part with.

Day Trade to Win helps traders realize the risks in trading. As an educational service, traders are taught how to avoid some common, costly mistakes. Traders are taught to have a plan and how to operate trading software to potentially mitigate some risk. 

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