Super Gann Trader Academy which conducts stock market institute in Delhi, offers free trader awareness lessons.
Risk is part of every human action. From the moment we get up in the morning, drive or take public transport to get to work till we get back in our beds, we are exposed to risks. We also seek some risks on our own (speeding on highways or gambling, for instance) and enjoy them.
Risk is a blend of opportunity and danger with an uncertainty in relation to its outcome. This blend makes trading (everyday risk of gain or loss) a challenging profession as compared to other professions.
Risk is like fire. You can use controlled fire to cook food, get light and warmth. Uncontrolled fire can burn down the house.
Physical risks like walking at a height or a fire can be judged. Generally, people take adequate precautions against these visible risks. However, we are blind to abstract or invisible risks like investing in financial markets, high speed driving, not wearing a helmet on a motorbike, health risks etc.
Taking risk is part of human genes. Our ancestors took risks and moved out of their natural habitat and colonized the entire world. We like seeing movies and advertisements showing hero pulling off stunts and taking big risks. A movie where the hero plays it safe all the time may not be of any interest to majority of the population.
Calculated Risk or Excitement????
A professional risk taker in financial market is called a speculator. A speculator takes intentional risk by buying or selling shares to make a profit.
Most speculators (investors/traders) lose money as they do not understand the risk involved. They trade without method, training or discipline. They trade on the basis of tips, emotional impulses and news. Even after losing money they continue to trade as they are addicted to the excitement of random profits.
Casinos make money by using rules of the game that put odds of success in their favor. They earn the boring cash while losing customer’s get excitement from playing.
The winning traders do not get excited by market. They play the markets like Casino owners. They trade by rules that puts odds of success in their favor.
Trader’s success rate has declined, although we have faster computers, internet and mobiles that deliver news and information in a wireless manner. This is because in the complex environment of the stock market, no amount of information is enough.
Most of financial risks in markets, comes from what we cannot know or do not know.
Successful traders accept this fact and they have learnt to trade with controlled risk and favorable reward to risk ratio. They play the game in a defensive manner. Their first priority is capital preservation. They are Rahul Dravid’s of this game of speculation.
They specialize in their trading method and have a trading system that gives them signals to enter when the market has a favorable reward to risk ratio. This is their edge. They also have active money management systems to give them risk control.
Trading can be mastered. We can be successful in this trading business. But first we need to first learn this mental skill. It requires guidance and practice.
This trading skill is highly rewarding due to scalability of the business. A trader needs to do the same amount work for earning one thousand or a million.