And this video I'm going to touch on trading psychology and risk management strategies now, this is
a area of trading that, quite frankly, takes up its own course most of the time or even books are
huge volumes of books written about this one subject.
And that's because one thing that I would point out, and it took me a long time to learn this, that,
you know, anybody can learn to read a chart.
The question is, can you hang on to the trade?
Can you recognize when it's time to get involved and can you accept losses?
There are a lot of different things out there that you need to pay attention to and when you get involved
in a trade.
So, for example, I mean, Goldman Sachs in front of you and you can see we formed a bearish candle
right here at.
Previous resistance in New Zealand, and that's fine, you know, I could teach anybody to do that.
That's not the hard part.
The question is, are you comfortable as it's going against you?
Do you accept the fact that not every trade is going to work out for you?
You know, an analogy that I would use is that a lot of you have retirement accounts out there and the
retirement account, you know, let's just say it brings back, I don't know, just 10 percent a year.
That's probably pretty decent, steady returns in a retirement account.
You know, some years it'll be five percent, some years it'll be 15, whatever.
But, you know, if you average 10 percent, you're relatively happy with that trade trading activity.
So the question then is, do you micromanage every trade that the fund manager takes?
Well, of course not.
You know, you're not going through and saying, OK, well, you lost two percent here.
You lost one point one percent here.
You gained two point six.
That's great.
You know, and you gained one point one.
But, you know, what do you do?
A losing point, five percent here on this trade for, you know, whatever the trade was.
No, you look at the total returns, and that's something that you have to focus on.
You can't focus on any one train, that's the the hardest thing for some people to do, because you
get very emotional.
But you have to understand that sometimes things just happen.
You can have the best technical analysis in the world and you can have what looks to be a sure thing,
just blow up in your face because of some random comment from a central banker or a scandal in a company
or a multitude of other, you know, a hurricane and or an earthquake, whatever.
So one of the best ways to look at this and to take advantage of the markets but also make it so that
you can stay in the market, is have a risk management strategy.
And in my case, I only risk one percent on any particular trade.
So and that's one percent of the total portfolio.
So just to keep things simple, let's say it's one hundred dollars in my little, you know, portfolio
and I risk one percent and I lose.
And that puts me at ninety nine dollars and I risk one percent there and I lose again.
And that puts me, you know, instead of 98 this time it's ninety eight ninety eight point one.
And then a risk one percent and my one percent brings me back a little over ninety eight percent, so
I'm back over ninety nine slightly and so on, you know, when you get.
When you get that that type of reaction, you know, your equity curve is going to look like this is
a very steady you can you can function.
The problem that a lot of traders get is they worry too much about the destination and not the journey.
So what they'll do is they'll risk five percent and in the same portfolio, a little one hundred dollar
portfolio, you lose that five percent and then you're down to ninety five dollars.
OK, well, it's not the end of the world, right?
So you gain five percent after that?
Well, you're no longer talking about five dollars.
It's less.
You're actually at ninety nine and some change.
So that's the paradox here.
You lose five percent now it takes about six percent roughly to get that back to break.
Even so, it becomes even more difficult because remember, the trade is going to work out one way or
the other and the market doesn't care that you need six percent this time instead of five.
And the reality is a five percent move might be rather difficult to get in whatever market condition
is.
What if it's only three percent?
Well, you're kind of on your way back, but you haven't made it.
And three percent after five percent losses roughly halfway.
So, again, you have that issue.
I mean, the reality is that you need to stay in the market, your number one job is to make sure that
you keep.
Your capital, in your trading account, you must protect your capital, and the easiest way to do that
is to simply risk something that you're comfortable with.
And being comfortable is the next point that I would cover.
You should be comfortable enough that you can short this candlestick here.
For example, you put your stop loss above it and you can just let the market do whatever it's going
to do.
Say you have a target down here and you see it did work.
You know, it was middle of the next day.
But let's just say that was your target.
Well, there's no reason to get out of the trade until the stop loss is hit and you have to be comfortable
enough that you can walk away, quite frankly, you don't have to sit at the computer white knuckling
the whole time.
Well, let's look at it, you know, a little bit more common, sharp maybe for a day trader.
You get extremely bearish candle there that you decide to short and you recognize that there's probably
going to be support there.
So you just try to pick up, say, 50 Cent, you put your stock up on top of that candle, because if
we break above there, that would negate that signal and you hit it.
But are you going to sit here and white knuckle it for 30 minutes?
Or are you just going to let the market do what it's going to do because it did move up a little bit
against you?
Are you going to freak out the first couple of ticks you get against you?
Oh, my God.
You know, I'm going to lose money.
This is why and this is another thing that helps with the risk management, this is why you will hear
me more than once through the course, talk about what's the longer term trend trade with the longer
term trend.
Yes, I realize and I don't even know what the longer term trend is on this chart.
Let's pull up the weekly.
OK, well, it's been a lot of down trending here recently, so it makes sense that you would be more
of a seller, but you are approaching support during this time.
There would be, you know, frequent pullbacks during the day.
But, you know, it's not that you can't get that money, but quite frankly, it's just easier to go
with the trend.
And that will more often than not, make the markets a little bit more forgiving of your trading.
There is a huge list of things that could be going through.
But suffice to say position sizing, comfort, you have to be psychologically comfortable.
You have to realize that this is a marathon, not a sprint.
So one loss of a percent, is it going to end your trading career?
You don't need to get it back right that second, because if I told you.
Hey, at the end of the year, you're going to be up 33 percent.
And you knew that was the outcome, then why would you sweat a one percent loss and that's something
that you're going to see a lot of.
You're going to have a lot of days, you know, days where you have three or four losses in a row,
you know, where you're just on the wrong side of the market and for whatever reason, can't get a handle
on it.
Those are the days you get up and walk away.
You just cool off.
You give yourself some time away from the screen and then you realize, you know, you can approach
the market maybe later in the day or better yet, the next day when things have calmed down.
Anybody can read a chart, but it's what you do with the trade once it's in play that truly matters
and position sizing, I would be willing to say that psychology is probably 85 percent of trading quite
easily.
Now, you need to have the tools to read the charts and understand where the market may or may not go.
But you have to understand also that and truly understand this and accept that just because it looks
like it's going to struggle to get above 238 on this chart doesn't mean that it can't.
So keep that in mind as well.
Take a breath, relax, you're in it for the long haul, you're going to learn to enjoy the process.
I promise you, if you spend enough time doing this, there's a lot of highs and lows.
But at the end of the day.
It's a smooth equity curve that will calm your nerves.