Hi Trader

Welcome to Part Four of your free Stock Market Trading Mini Course:

“What The Wall Street Hot Shots Won’t Tell You!”

This part of the course reminds us that “Even If You’re Winning, You Can Go Broke! Yes, that’s right, you can go broke taking profits if you don’t get this right.”

Risk Management

One of the keys to successful trading is risk control and money management.

What is Risk Management?

Risk management is the process of identifying and managing the factors that could adversely affect your trading and then taking all reasonable steps to limit or eliminate the impact of each factor.

The essential steps are: identify the risk rate the impact of the risk rate the probability of the risk develop strategies to control the risk manage the risk.

So some risks may have a high impact but are very improbable. And other risks may have a low impact but are likely to occur.

So your response to them will vary. And some will be easier to manage than others.

For example, it is fairly unlikely that your broker would cease operating. But it could happen and the impact would be substantial.

So you need to manage this by having good records and an alternate broker.

On the other hand, you will regularly have to pay more for your trades than you had hoped. And the risk here is that it could cost you a lot of money.

But, unless you are careless, the impact of this will be low. And the strategy for managing it is straightforward.

Risk Tolerance You need to find a level of risk that allows you to sleep at night. We call this the sleep test.

And you are the only one that can decide what this level is.

So what is your tolerance to risk?

Are you able to accept higher risks for higher financial rewards? Or are you conservative when it comes to money and investing?

If you have a low risk tolerance you need to find a trading style that matches.

On the other hand, if you have a higher risk tolerance, you could adopt a more aggressive trading approach. But be careful that you don’t take on unnecessary risk just because you feel you can cope. That is a recipe for disaster!

So don’t rush into using trading techniques that you are not comfortable with. But accept that any type of trading will feel strange at the beginning.

And realize that your risk tolerance can change with experience. So don’t feel that you can only ever trade in one way. With increased confidence you can expand your trading repertoire.

Comfort Zone With most things in life you need to leave your comfort zone to be successful. This is certainly true of trading.

And leaving your comfort zone involves risk.

But you won’t learn anything and you can’t earn anything without taking risk and moving away from comfort.

So whilst it is important that you don’t over extend yourself at the beginning, it is also critical that you not be too easy on yourself.

Just as you need to push your boundaries to grow as a person, you need to extend yourself to become a great trader.

GENIE TIP If you can’t sleep at night, reduce your risk.

Risk Control The way to control risk is to take risks!

Now that may sound like nonsense but just hear us out.

The reality is that you can’t avoid risk. And without risk there are no rewards. So if rewards come with risk -to not take risks is riskier!

Now this is not just semantics.

Because it is critical that you understand and accept that the only way to control risk is to embrace it. Ignoring it will not make it go away. So learn to deal with it.

You can minimize risk if you know what you are doing. But realize that you can’t eliminate risk, you can only control it.

Risk control is essentially about survival. It is a way of ensuring that you survive long enough to develop into a good trader. And then long enough to become wealthy!

So your first goal in the market must be preservation of your capital.

GENIE TIP Your first goal in trading must be survival.

The key aspect of risk control is money management. But before we discuss that topic, we would like to review some broader issues.

Risk control is essential for your survival as a trader. After trading psychology it is the most critical factor. And unless you learn how to manage risk you will never achieve trading success. It is that simple.

Know the Risks

Before you can deal with risk you need to identify it. And then develop a strategy for managing it.

Some risks can be controlled and some you will have very little control over. And risk can be divided into two different types, avoidable and unavoidable.

Avoidable Risk These are risks that can be eliminated through your trading rules or management techniques.

For example, trading illiquid markets (markets without sufficient volume) is very risky. But having a rule that you won’t trade them eliminates that risk.

Another example of an avoidable risk is order placement. If you use limit orders instead of market orders then you automatically reduce your trading risk.

GENIE TIP Use limit orders whenever possible.

Unavoidable Risk These are risks that cannot be eliminated. And unavoidable risk can be further broken down into those that can be controlled and those that can’t.

An example of unavoidable risk that is controllable is trading losses. There is no way you can eliminate loss. But you certainly can control the size of your losses.

An example of a risk that appears uncontrollable is that a company may go bankrupt whilst you hold their stock. But whilst this may seem outside your control, the reality is that there are usually signs leading up to a company failure. So the risk management technique is to monitor all your trades for problem signs.

A truly uncontrollable risk event is something like 9/11. But even here you can control the risk to some extent by your ability to respond quickly and appropriately.

Types of Risks So what are the risks you need to be aware of and learn to manage?

Some of the most important for you to learn are: Lack of Knowledge No Plan Market Risk Market Sector Individual Stock Actual Trade

The StockMarket Genie course covers these risks in detail and you really should be across them before you start your trading. It is a crucial area for you to understand if you are to be successful in your trading.

We have covered this as much as we can in this email format. I urge you to go to www.StockMarketGenie.com/Course now before the special introductory offer runs out.

I say this so you can get the information you need to strike a balance between embracing risk so you can make money and avoiding the risks that could wipe you out financially.

That’s it for this issue of “What The Wall Street Hot Shots Won’t Tell You!”, I hope you have found something that is of help to you.

If you have anything you want to see covered in this course please don’t hesitate to email us at the address below.

Keep a look out in your inbox for part 5 of this course which covers: Taking control! Make money quickly and safely by doing what others don’t.

This free course is brought to you by the StockMarket Genie(TM) Trading System.

“Ordinary People Making Extraordinary Profits!”

Regards David Chandler www.StockMarketGenie.com/Course support@stockmarketgenie.com

PS Have you been here yet? www.stockmarketgenie.com/insiders

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Remember, we are not providing you with financial advice. We are simply sharing with you what has and hasn’t worked for us personally. If you wish to trade or invest in the stock market you should obtain advice from a registered licensed advisor.

Regards

David Chandler StockMarket Genie StockMarket Genie 43 May Road Torbay AUSTRALIA 6330