Time Crunch Trading

We have touched on this a little already, and we will do so again in a more specific fashion in a chapter to come, but you cannot spend too much time talking about risk and money management. It can be the single element of your overall trading which has the biggest impact on your results.

There is risk in trading. No method or system is always right. You have to decide how you will handle that aspect of being a trader. That comes down to your risk tolerance.

Before you can set about properly outlining a meaningful risk or money management strategy you first have to understand and define your personal risk tolerance. Some people are naturally risk-averse. They will tend to only feel comfortable exposing small amounts of their portfolio to the potential for loss.

Others are more risk-tolerant and can stomach wilder portfolio swings.

There is much which goes in to this tolerance determination – age, personality, income, life situation – but the central point is that risk management must take these things into consideration. Risk tolerance goes a long way toward determining the manner in which you operate.

Your tolerance, though, only sets the stage. Your risk and money management approach has to be a fully developed plan of action for dealing with the inevitable ups and downs of trading. We will discuss that process later, but the important thing that we want to drive home right now is the need to be proactive and disciplined.

Risk management is defense for your portfolio. There is a common adage in sports that while offense may win games, defense wins championships. This can be directly applied to trading.

If you take the attitude that you are going after the big score, the big winner, you are not likely to be in the trading game all that long. Sure, you might experience some fantastic results in the short term. That sort of thing happens all the time.

The trader taking the capital preservation approach (plays defense) is much more likely to be around for the long haul. They do not suffer debilitating drawdowns of the sort we mentioned previously, so they are always in the game ready to ride the next upswing. In short, they prevent the markets from knocking them out of the trading game, thereby giving themselves the opportunity to win.

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