“Proper Risk Management will Make You Wealthy in the Markets…”, July 15, 2014

“Proper Risk Management will Make You Wealthy in the Markets…” (as appeared on July 15 in my eZine)

“… not taking Big Risks based on the Huge Leverage nowadays available in the Forex and other markets.”

And the good news is that becoming wealthy it is really possible, even if you start from a very small account (hundreds of dollars).

No SECRETS to share here, what works in other fields works in trading as well: hard work, a positive attitude to learn, an open mind to accept ways of thinking differently from the majority – 95% of traders lose consistently –  and consistent results, not necessarily large.

Let me first tell you how a typical starting or inexperienced trader looks at the gains and risk part of the equation of successful trading.

Keep in mind that when you trade professionally, you will have a lot of trading opportunities and you need only to make a 3% to 5% every month.

When students and followers hear this statement they are not very comfortable with it.

They understand the importance of being well capitalized to trade the markets, and the typical answers I get are “I need to have much higher monthly returns than that” or “that may be a good way for rich men, 3% to 5% is not good for deposits like mine”.

These expressions hide the highly dangerous seed of greed and fear of losing opportunities, that is typically responsible for the  large percentage of losing traders still in today’s market (near 95%).

This way of thinking leads to ‘not acceptance of risks’ which is at the roots of why people cannot stick with a position, even when it promising and well initiated, or do not use stop-losses (current recent statistics from a large North American broker shows that is still 22% of Forex traders).

But having “reasonable” monthly returns (which, by the way, could be much higher than the 3%-5% mentioned above), risking 1% or less at each trade, is the right way to go.

Ask me why? I have learned this the hard way!

When you reach consistency and say make a 5% a month, you can start adding to your account, with time.

Initially a $20,000 account would only yield a ‘dismal’ $1,000 in monthly profits (5% of $20,000). But then you can commit to saving more – and a for a good reason – and even improve your monthly returns, and keep building your capital.

In less time than you believe you will have a sizeable account.

Is it really important if this takes a few years ? (if you choose carefully your mentor, this could go down to months).

Not, it is not! Here is the reason.

Even if you are about to retire or are retired, it is still a good time to start. Trading Forex, or any other asset class, is an “evergreen” skill! You can profit with it for the year to come!

It is a skill you can teach to your children and grandchildren and that will keep you going and mentally active, and wealthy.

When you remove the emotions from trading, by using methods like the FibStalker method which incorporates the psychology of trading (intended as the average traders’ response to price, taken in aggregate) you can enjoy trading even if you are under aspirins treatment to lower the risk of heart attack!

What if you are younger? More power to you! You have even more time to enjoy the learning and to practice the skills.

It’s not difficult, although maybe not anyone can do it. But if you have a sufficient does of determination, willing to learn and patience, the skills is yours to acquire!

Now here is the important mental shift that is necessary and the mean reason why I wanted to write this article.

This is SECRET, if you want, the way you have to mentally approach trading.

When you have few hundreds in your account, say $500, a 5% is only $50. Not something you can bank on or that can justify the time you dedicate to trading.

However this is the correct way to think of it.

When you become consistent and start making 30%-40% a year or even more (I worked with a mentor who made 400% in one year), and you can prove that you are consistent that’s where things get interesting.

If you can show 9 months of regular consistent results and an additional 6 months live, you will start seeing interest from investors to having you trade their money.

So if there is a SECRET, when it comes to learning trading starting from limited resources, this is it.

“Learn to trade and money will take care of itself!”

Learn the ‘evergreen’ skills of trading and you or other people will eventually commit money into your decision process.

In fact, our job as traders is to mind the decision process, is to to make sure we take quality decisions.

This is what there is to trading, really. Forget the forex robots and fully automated trading and – most EA (the “Expert Assistants”), forget the 100% of returns monthly. That is not going to happen.

For every guy or gal who gets lucky there are tenths of thousands who follow the dramatic, losing fate of the average traders.

Do you want to trade or do you want to gamble? If you picked the second, you should really unsubscribe my email list. Seriously!

On the opposite, do the right thing! Invest in your education because when you will be proficient and consistent with regular gains, the money you have in our account will not be an obstacle.

And if you decide to do so, please review my work before you take a decision and let me know what you think.

Whatever the size of your account, it will not prevent you to express the fully potential of your newly acquired, evergreen skill.

As Benjamin Franklin would say: “an investment in education pays the best interest”. In this context he would probably also say: “you may delay, but time will not”.

PS: I love Franklin’s quotes. Find here more inspirational quotes from Benjamin Franklin

 

Please let me know what you think about the content of this article. Go ahead, leave a reply in the form below.

 

In my research and practical trading I study the effects on price of classes of algorithms in high volume markets. If you are interested in a new and effective trading edge, check my work at www.fibstalker.com.

Happy Trading

~FibStalker

WHO IS GIUSEPPE BASILE?

Giuseppe Basile
Giuseppe is a Certified Market Technician and swing trader, IFTA and SIAT associate. Holds a B.Sc. in Computer Engineering and a MA in Finance. In the markets since 2001, became trader and mentor in 2007. Studied with several traders in UK, Europe and US, adding over 7,000 hours of screen time between 2009 and 2013 alone. In 2012 launched FibStalker, a blog specializing in forex, futures and stocks trading, where he also runs a free newsletter and publishes daily videos with actual setups and complete trading plans.

Giuseppe’s unique method attempts to spotting footprints of Program Trading, a powerful class of algos that governs the markets. Giuseppe is a rigorous researcher with several published papers about money management, automated trading, HFT and innovative timing and trading methods.

Advertisements

2 Comments

Filed under Education, Program Trading, Trading Psychology, Webinar

2 responses to ““Proper Risk Management will Make You Wealthy in the Markets…”, July 15, 2014

  1. Pantelis Tsiaparas

    Hello Giusseppe, I hope you’re doing well.
    I see me on the past through your post. Thank God I’ve met you at the right moment (I wish it was earlier) and thanks to you my capital escaped the disaster.
    For everyone who’s reading this post (especially for the new kids on the block) I’d like to say that beyond your very good algo trading approach and method (free given by you), there’s something more I’ve learned from you. To my opinion that’s very important and it’s the No1 rule for me since. Well, the rule is: Don’t aim for the profit; ..instead, aim for the protection of your capital and the profit will come almost (here’s Fibstalker Method) by itself. So, never ever trade without a solid SL and without Money Risk Management.
    Giusseppe, I believe I’ve put it well; ..if no, you are welcome to correct me.
    Regards
    P.T.

    • Hello Pantelis,
      thanks a lot for your testimony. That means a lot for me.
      I am very happy I was able to help you in that moment and I am glad that my indications have been of help to take you out from a very difficult situation.
      You have put it really well Pantelis, and I am grateful the message is passing through.
      This is a game we win in defence. Using a soccer parallel, we have to use the ‘famous’ Italian “catenaccio”. Small risk, for relevant gains, on a high number of opportunities. This is how professionals make money, there is not a solid reason to believe that retail traders should do differently.
      Pantelis, sensitivity, intelligence, discipline and an open mind are very important in this business, and you are showing excellent progresses in only few weeks.
      Keep up the good work and discipline your greed and fear of losing opportunities and you will get there. All the piece of the puzzle will come to the right place.
      And that is a promise!
      Have a good day
      Chat soon
      G.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s