Monday, February 10, 2014

Risk and Risk Management

Everything that requires making a decision or choice involve RISK. How do you minimize and manage risk?

One of the interesting aspect of price movement is ONCE it direction (trend) is set, it is unlikely to change. Yes, there will be minor interruptions before the direction changes. We should not be shaken if we understand the anatomy of a trend.

There are set-ups period before the interruptions. We must be able to identify all these major and minor setups. Before it rains, there is a period of cloud condensations. Occasionally, you will have random rain without condensation. But such random rain last for a few seconds.

IF you can identify all the different setups and take the necessary actions, you have minimize your risks to the minimal. We cannot control is "act of god" risk which I call Govt. interventions! Again Govt interventions requires a long period of abnormal observations. When we see abnormal activities, we can anticipate some sort of interventions which again prepare us for some decisions ultimately managing risks to the minimal.

I am an advocate of BUY STOP and SELL STOP. I am not a believer of STOP LOSS. If you can perform what I mentioned above with the proper tools, STOP LOSS should be toss out of your vocabulary.

I am a firm believer in averaging. I do not have the time to sit and monitor markets all the time. I do not believe that staring on the screen quotes non-stop will yield better results. On the contrary when I observe a set-up developing, I accumulate my positions slowly at different levels averaging to the low side if I am buying into the market. If I have positions and waiting to exit, I will do likewise averaging my sell position to the higher side. I spare myself the agony of picking TOP and BOTTOM. As long as I am within 5% from the low or top, I am satisfied.

One must learn to enjoy the trades and decision making. Only than you will have a long happy pursuit.

It is not my intention to spoon feed others. It is better for me to educate and tickle your brain cells.Take the effort and habit to think! You will be surprised how far you can go! You can never imagine your confidence will develop overtime. Most of all, you will notice your journey will not be in vain.

From trading for a living, you will be trading to prosperity! 

I will occasionally post some charts for you to digest.


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