Share Trading School

There are a few trading rules that have stood the test of time and enable traders to trade profitably, yet a lot of people fail to follow them. The rules are no secret to anyone as you will find them in many trading books and other materials. The rules like 'cut your losses' and 'follow the trend' have worked for hundreds of years yet most people ignore them!

Money is something that affects people's emotions and your natural instincts with money will often encourage you to break some of the time tested risk management rules, for example 'cutting your losses' and 'keeping your trades small'. Most traders focus on making money and realising a loss goes against the aim of making money. Similarly, when you have a position that is performing strongly, a small part of you wants to sell that position to realise the profit. This is perfectly natural. Letting your profits run and not selling too early is also an important time tested rule, however because of the focus on money, some people can be very quick to sell shares when in a profitable situation.

If you find it difficult to accept an initial small percentage loss in a trade, what makes you think it is going to be easier later on to sell the shares when the position has lost 30% or more? Yet, when you consider the influence of trends in the market and how important it is that you manage risk, the best time to sell the shares is when you are faced with only a small loss.

Courtney Smith does a late night rant about risk and risk management.. He talks about how important it is to control risk and gives specific ideas on how to control risk. Hear why risk management is crucial for trading success.

 

 

QUOTE:

The Dow Jones Industrial Average needs to break through 10,500 points to escape its current bearish trend, Daryl Guppy, CEO at Guppytraders.com, told CNBC Monday.

© 2010 CNBC.com

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