Part of learning the proper training and methodology for online day trading is not only learning what to do, but also what NOT to do. Many people who come into online trading make the mistake of taking on way too much risk by placing large trades with unmanageable amounts of leverage. Read on to learn why taking on too much risk in online trading is a stupid gamble.
A smart gambler knows his or her odds, but also depends upon a certain amount of skill data hk . A stupid gambler is not really even a gambler; he or she is just a lunatic with some money who is hoping to happen upon a lucky streak that will lead them to victory. When a trader takes on too much risk by placing large trades with unmanageable amounts of leverage it is not smart trading, it’s financial suicide. Essentially, it’s stupid gambling.
In online trading it is essential to know how to effectively manage risk and place trades in a method that does not jeopardize your state of mind or your account. You also need to realize that online day trading is a probabilities game, and even if you do win big when taking on massive amounts of risk, you are just setting yourself up to lose big in the future if you continue with that behavior. Taking on too much risk is like playing Russian roulette or tempting fate (if you believe in that sort of thing).
In Nassim Taleb’s book “Fooled by Randomness” he makes a nice comparison of two online traders: one takes on large amounts of risk and another doesn’t. The one trader taking on large amounts of risk, if he wins, may be seen as some sort of trading genius because of all his winnings. But, the fact is, he should be viewed in the light of a Russian roulette player. What if we witnessed someone playing a game of Russian roulette to make money, would we think he or she was a genius or a nutcase?
One of the worst things a trader can do is take on too much risk and wipe out their preceding hard earned gains. They often then start using even more leverage and high risk methods to make up for the losses. Even worse is when someone wipes out their whole account all together.
Do not try to win the battle; your job is to win the end war by being tactical, consistent and methodical. You have to know what is realistic and what you and your system can accomplish. Place trades in a fashion that takes probabilities into consideration. You always need to know what the worst possible outcome could be and be aware of what you are risking. Most importantly, you need the money management techniques necessary to protect yourself as much as possible so you stay in the game.