The More You Trade, The Less You Risk – Week 57 – 4 Minute Drill for Traders

This week I touch on a few more points about capital preservation.  “The more active a trader you are, the less you should risk per trade”… it seems counter-intuitive… but I explain how this works and I stress that you need to defend early winnings.

Let us know what you thought of this week’s 4-Minute Drill for Traders… just hit the comment link below!

Hi… Norman Hallett here with your next 4 Minute Drill for Traders.

Let’s continue on our Capital Preservation rampage by hitting a couple of more points.

I may have to say this point twice because it’s counter-intuitive…

The more active a trader you are, the less you should risk per trade. I’ll say it again…

The more active a trader you are, the less you should risk per trade.

Obviously, if you are making dozens of trades a day, you ca’t afford to risk even 2% per trade…

…because one really bad day could virtually wipe you out.

Longer term traders who may make 3 or 4 trades per year, could risk more… say 3-5% per trade.

For me, if I have a good start to my trading day, I’ve learned NOT to turn up the heat and take on bigger positions ‘while I’m on a roll’.

In fact, I do just the opposite. I go into more of a defensive posture, taking on less risk for the rest of the day and demanding that I only take VERY high probability trades at the end of the day.

If you find yourself wanting to turn up the risk if you get off to a good start in your trading day… you may want to ‘check yourself’ and see if you’re treating your early profit money as “profit”…

… and make it, somehow, OK to lose back because it’s “just profit”, so you’re willing to take some bigger chances to parlay your early winnings.

I’d MUCH RATHER you DEFEND early winnings and see that early profit IMMEDIATELY as part of your Core Capital, and defend it as usual …

… and moving forward in an orderly fashion.

And, by the way…Regardless of how active you are, make sure you limit your total portfolio risk to 8%.

AND SPEAKING OF CORE CAPITAL… this is a good time to make an important point…

Make sure you are ADEQUATELY capitalized. There is no Holy Grail in trading. However, if there was one, I think it would be having enough money to trade and taking small risks.

These principles help you survive long enough to prosper.

I know of many successful traders who wiped out small accounts early in their careers…

…and it was only until they became adequately capitalized and took reasonable risks that they survived… then Prospered… as long term traders.

The larger accept you start off with, the easier it is to find low percentage risk trades … and I’m talking about percentage of your total equity…

…and by keeping risk very low, you can stay relaxed so that you can BE THERE for the big gains when they come.

So… To sum it up for today…

The more active a trader you are, the less risk you should take per trade… and remember that in order to succeed long term you MUST be adequately capitalized.

It’s much easier to succeed as a trader with a 50,000 dollar account than with a 5,000 dollar account.. .because it’s easier to keep your risk percentage low, the bigger account you trade.

OK… that’s it for this addition of 4 Minute Drill for traders.

So, until next week…

Stay Disciplined!

Category: 4-Minute Drill for Traders