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I thought about calling this thread "Secret Trading System Revealed!" or "Strategy Guaranteed to Make X Return" because I know that for many, the idea of money management in trading holds little interest. I decided against it though because "you can take a horse to water, but you can't make it drink" so to speak. More than anything I hope to get a proper discussion going to highlight the importance of paying proper attention to the figures and trading accordingly and discuss ideas. I hope this thread can be a place where more experienced traders can share their ideas and newer traders can learn and ask questions.

Are you one of the many swing traders that takes the same level of risk notwithstanding the market conditions? Do you always trade "a thousand" shares just because that's an easy number to remember? I will discuss some finer points that might help you to become better at managing risk. First and foremost, the Pristine Trained Trader (PTT) should have a Trading Plan outlining his money management rules. Here you should establish parameters such as a "maximum loss per week-month". When establishing a maximum loss per trade (because no one can know which trade is going to work out), the PTT has to decide whether he wants to follow a more "static" approach where all his potential losses will be similar, or whether to adopt a more "dynamic" set of guidelines created with the purpose of governing when to be more aggressive, less aggressive, or not active at all. First and foremost, you have to understand the fact that not all market conditions present the same odds for a particular trade. Let's say for example that market "x" is in an up-trend, and has pulled back to support for several days. Today we get a reversal bar, and tomorrow the reversal is complete. Thus, the swing trader will likely find several high odds entries both today and tomorrow (depending on the tactics used, many of which are taught in our Trading The Pristine Method seminars. Then the third day comes along, the market continues to climb, and some more entries might be executed. As the market continues to rally, the odds of every new entry will diminish, as the probability of a reversal to the downside in market "x" is greater. Based on this scenario, a swing trader might enter into larger positions on days one and two, and might reduce his share lots as the market continues to climb. There will be a time when the market has climbed for 5 or 6 days in a row, and so the Pristine Swing Trader will devote more and more of his time to manage already open positions, by selling partial lots and raising his stops, instead of being too active in entering new swing positions. (He might be more active in micro trading activities though) Trade Well! Kurt Capra Contributing Editor Instructor and Traders Coach

Risk is a broad market term that refers to the potential loss that can be” seen in any trade. In forex, risk is generally limited by using a stop loss on open positions.

Jurisdiction Risk are seen at their highest levels in areas that have no chosen to comply with the Financial Action Task Force. Jurisdiction Risk can also be seen in areas where widespread corruption and money laundering have become prevalent.

Unsystematic risk is different from a systematic risk in that the risk is not system-based; it is more unique to the circumstances of the asset. For instance, if a company posts poor earnings and its stock price drops as a result, then this is a situation unique to the asset because another company in the same sector may posts a better result and its share price will rise. We see an example of this in the smartphone market with the contrasting fortunes of Research in Motion (Blackberry) and Apple (iPhone). Portfolio diversification eliminates unsystematic risk.

Sometimes, the value of an asset portfolio may drop over time due to certain market events that affect a significant portion of the market (e.g. the global financial crisis of 2008). Under these conditions, it is virtually impossible to mitigate this risk through diversification of investments within a particular segment of the market. However, because there "is always a bull market somewhere" (according to hedge fund trader Nicholas Vardy), shifting the investment to a different market segment may help to cushion the risk.

One of the main tasks of financial institutions is to manage aggregate and limit exposure to adverse price swings. This can be seen in debt defaults, for example, and a financial manager’s job is to adjust position sizes so that excessive exposure is not seen at any one time.

Trading can be a lonely game. Especially when you are trading on your own. Moreover, the lack of accountability to others, for many traders is a particularly difficult hurdle to overcome particularly in the early days and before consistent profitability is reached. Not only can a trader be less compelled to do what they really know they should, but also they're more likely to convince themselves that highly questionable tactics are reasonable in the pursuit of profits or evasion of loses. Just ask Jérôme Kerviel once of Soc Gen, or Nick Leeson of the now non-existent Barings Bank. Hell, if Nick can bring down Britain's oldest investment bank, a retail trader is more than capable of bringing down their relatively tiny account right? Once that objectivity is lost and trading the 'right' way is thrown out the window, it's a slippery slope to dollar zero hour. The harder the trader fights, the worse it can get. No accountability to anyone but yourself and your broker- who in most cases won't give a monkey's unless you get a margin call. It is my opinion that it is every right minded trader's duty to ensure a reasonable amount of accountability. My question to you is, how do you do this?

Hello Traders, It's been some time since I posted. After years of perseverance, I can finally say I am profitable. I have a trading plan, I use risk management to control my losses and although it is by small amount, I have been making money consistently since last October. As with all trading plans, I was expecting this to eventually happen I'm in a drawdown. My last three out of four trades have been stopped out. I would like to hear your input on how to manage it. Some say, just keep trading the same size and others say decrease lot size, until your trades start to make money again. Your thoughts would be appreciated.

I'd like to see what others think about the phrase which has been used more and more recently. Anyone with even a slight interest in the markets has probably heard this phrase. "Today is risk on as stocks soar" or "We're very clearly risk off as flight to quality continues". What the hell does it really mean though? Right now markets right now are highly sensitized to risk due to ongoing systematic problems throughout the world. Some specific stocks and assets are seen as more defensive than others and so when risk is off, these stocks should relatively speaking outperform more speculative investments. So what is annoying me more than anything is that some guys have started using it as a replacement phrase for "stocks are up" or "stocks are down". For example, the stock indices may have moved higher yet overall it's not based on riskier stocks, yet someone might say "it's risk on today". Well that's pretty misleading imo. Anyway, does anyone else have any thoughts on that or any other phrases they'd like to complain about??

Can anyone refer me to any reference work on risk and time in the market. E.g. if two strategies have equal returns but one has the trader in the market longer than the other, how do we calculate the strategies' relative risks? Thanks.

In trading there is a factor known to many as the ‘R’ factor or risk factor. Traders determine their average or base risk per trade they’re willing to take and name it ‘R’, and then measure profits as a multiple of this ‘R’. For example, a 3R profitable trade means the trader has made 3 times the amount they risked. The idea is to determine the ‘R’ factor early on in the trading system building stage and keep it consistent, whether it is a fixed dollar amount or a percentage of available capital. The benefits of using an ‘R’ factor include measurability, especially during back testing, which helps to determine a systems potential, and being able to track your trades from a systematic point of view rather than a monetary point of view. However it is the monetary point of view that I would like to address as I feel there could be another angle or point of view that could aid struggling traders, especially those that find themselves cutting winning trades short (breaking their systems rules). First, let’s do a quick demonstration of the use of ‘R’. A trader has $20,000 in capital, and decides he wants to risk $200 of his available capital per trade. After much back testing, he finds that out of 100 trades, 40 were 1R winners, 10 were 3R winners and 50 were 1R losses. He now knows that after 100 trades he system will provide an estimated 20R profit (40R plus 30R minus 50R = 20R), and if ‘R’ is $200, then that equates to $4000. This trader can now use this information to help determine what he needs to do to reach his goals. Now, when determining the ‘R’ factor, there is one element this trader has missed, and that is, what is his ‘R’ factor from a personal point of view? Why did he choose $200 and not $300 or $100, or some other figure? This in my view is a serious question that needs to be asked and then answered, and in order to do that, one must look at their personal finances and spending habits. In your every day life you have small, medium and large expenditures all of which fall into the categories of either tangible or intangible. For the most part, most of us have no problems with medium to large tangible expenses, such as house or car payments, or a new TV as these are things we can see or touch. Medium to large intangible expenses are much harder, such as a seminar or course fee where the results are not guaranteed. Small expenses on the other hand are a different breed altogether. How often will you go and spend money on something small and intangible and think nothing much of the actual expense? An example would be some lunch on the go; where you buy some food and drink and know that the cost won’t change things much for you so you don’t concern yourself with it too much. But let’s say you get home that evening and decide you like the idea of eating out for dinner. Do you now think twice about where you will go and how much you are willing to spend? If so, you have a threshold on the amount of money you are willing to spend (as most of us do), especially on intangible items or items quickly consumed. This threshold or level of expenditure where you change from not thinking to thinking twice is a perfect example of where your comfort zone currently sits when it comes to the value of money relative to you. Go over it and you get uncomfortable and have to think twice. In trading, it will be no different. You will find it much easier to take losses where the amount, or ‘R’ factor, is under your threshold, than if it is over. I know many people will respond to this comment with the issue of, by risking so little it will take too long to make any decent amount of money or even the fact that brokerage costs etc will start to become a heavy burden, and these are fair responses. However, the fact of the matter is, the act of trading is not going to change the way your brain responds to such losses because there is nothing to show for the loss (intangible), and if the loss is out of your comfort zone then your brain is not going to like it. What’s more, imagine you are sitting on a nice paper profit which is in excess of your threshold; an amount that if you were to spend on something intangible would cause you to think twice. Your brain is way out of its comfort zone because a) it’s a lot of money to you, and b) you can’t realize the profit and thus bank it until you actually close out the position! When you are in such a position all sorts of justifications for breaking your rules start flooding your mind. Both of these instances of not being able to take losses well and cutting winners short are major hurdles traders face all the time and much of the issue lies in their personal relationship to money and the value they place on it. If you have a low relative value of money, it doesn’t matter what the system you use is or how well it performs for others; you are only able to extract from it what your relative value to money is. You should spend some time assessing your spending habits and determine where your threshold lies. If it is too low to even consider making substantial money in the markets, then you are faced with the tough decision of either looking for a different career or changing your threshold level. Much of the problem lies in the belief that money is something we generally lack, and that there never quite seems to be enough. Unfortunately, it doesn’t matter which way you look at it, this is a fundamental issue for most people, and it is no wonder 95% of trader fail.

Right. First off; This thread is about scalping and contains live trades only. Feel free to join in, the more the merrier and when there's some competition I tend to work harder! I'm going to show you how one way trades with very little risk but an immediate win/lose scenario can happen. I will be trading counter trend most of the time, playing bounces on major levels and news trading. I've already finished for the week already in two trades overnight (SWEET) so I'm going to use the account this whole week to see what % return I can get over the next month or so. I will be withdrawing money out of this account everytime it hits £1500 = (-500) £2000 = (-500) £3000 = (-500) etc! Hope you enjoy watching or contributing! Good trading. Starting with: £500.01 Current Balance: