Monday, March 09, 2015
100 Trading Quotes To Put Into Action And Change Your Life: Caution Is A Risk
The first quote in the "100 trading quotes to put into action and change your life series" speaks to a specific trader type. When thinking about risk, we often think of the trader who is impulsive, trigger happy and position sizes much too aggressively. However, there is another type of risk of which former Indian Prime Minister Jawaharlal Nehru spoke:
The policy of being too cautious is the greatest risk of all.
Let that sink in for a moment.
We generally become conservative to combat risk. As traders we become overly cautious, decreasing position size, holding out for better trades, sometimes passing on a trade because it is not the perfect setup. We may use analysis by paralysis taking into account factors that end up having little to do with the setup to justify not taking a trade.
Many traders are proud of themselves when they trade like this. They feel like they've accomplished something by not losing any money. Well I've got news for these guys. They will never become anything more than an average "keep up with the market" trader.
Is that why you trade, to keep up with or slightly beat the market? If so, stop analyzing the markets and just park your money in an ETF. If you are reading my work, I expect you to kill the market. You had better expect to make 20-100 percent gains even in down markets.
Now am I saying to throw caution to the wind and trade like a maniac in order to capture big gains? I think you know my answer. No, I am not saying that.
Instead, you must trade intelligently aggressive. When an opportunity arises, you take your shot and make it count. You strike right away and get bigger with your position sizing. Knowing when to do this comes from careful analysis and stalking of the right opportunities, when "preparation meets opportunity" (this Seneca quote will be one of the "100 quotes later on in the series).
If you are not prepared, you will freeze up. You will become conservative, cautious and pat yourself on the back for not taking the risk. Don't be that guy (or gal).
We are winning traders that gameplan, stalk opportunities and strike when the time is right. We go big, but do so intelligently, still managing risk and strategically managing the trade so it does not hurt too much if wrong. That's how every successful trader trades.
If you want to be successful, remember that being overly cautious is an "opportunity lost" risk that will keep you from your trading dreams.