Who goes into trading with the belief that they will fail right off the bat?
Most newcomers are enthusiastic and excited about the prospect of earning a large profit and proving their prowess as an investor. Holding on to these ambitions is important, as long as you are willing to accept the setbacks that come with learning something new.
When teaching a child to ride their first bicycle, most parents will equip their young ones with at least a helmet, if not knee pads and elbow pads. This is in the hopes that when they experience their first tumble, they will be able to get back up, brush themselves off and hop on the bicycle again with no downtime.
Without the helmet, they could injure themselves and stay off the bicycle for far longer or indefinitely.
Risk Management – a Crash Airbag for Your Investing/Trading
If you can take on a similar approach to learning the market, you can learn to survive.
Survivability is the one factor that makes or breaks most new traders. If you are not equipped to survive, you will fail. Even an expert trader will make a bad call now and again.
However, as a newcomer, you do not have the luxury of knowledge, experience, and possibly funds to make up for it. This is why you must learn to increase your ability to survive and get back on your feet (or the bicycle) and keep moving.
Any trader who has mastered the market has done so in part because they understand risk.
Telling yourself that you are above risk, or somehow immune to it, is the worst thing you can do. The sooner you come to terms with the fact that you will lose money at some point and that risk must always be accounted for, the sooner you will begin to grow as a trader. There are no sure things and a profit is never guaranteed regardless of how much or how little money you have to invest.
Always Evaluate Risk Before Jumping on an Investment/Trade
A skilled trader is always evaluating their position and checking the health of their trading account. If you are afraid to do this, then it is only a matter of time before you find yourself in a deep pit with few or no options. There are no two ways about it: a good trader must look at their long-term future. Survivability depends on it.
Before jumping on a trade, look at the amount of risk involved and compare that to the potential reward.
You must invest money if you want to make any, but doing so without throwing caution to the wind will earn you nothing but an empty bank account. Evaluate your financial position continually and consider the risk involved before fantasizing about the profits you ‘think’ you will make. If it’s acceptable, then proceed.
Remember, every single trade is only one of many more to come in your trading career. No one trade should ever make or break you.