Yesterday, I shared a blog post about The Kelly Criterion and how you can use it to figure out how many positions you should trade at one, and it has gotten me thinking about trading goals, what mine really are, and accepting the risk that comes along with them.
Mark Douglas, author of Trading in the Zone states that we cannot fully get into the trading zone unless we accept the risk of trading completely.
That risk could be blowing up your account. It could be investing all of your time and realizing trading isn’t for you. It could be losing a chunk of money you have earmarked for retirement.
Whatever the risk is, you need to accept it.
What’s Your Risk Profile?
Because there are so many different styles of traders we all have a different risk profile. My risk profile is different than yours. Yours is different than an investment bankers. Thank investment banker’s risk profile is different than your Aunt Harriet’s. And from what I have learned — your risk profile is directly related to what you are trying to achieve.
For instance, if my goal is to try and double my equity every year and learn how to achieve massive gains, then I am going to be taking on way more risk than a trader who wants to simply beat the market and ad to their savings. The number of positions he holds, the type of stocks he trades, his stops, his ENTIER trading plan would be different from mine.
His risk is that he might miss out on rapid capital growth in favor of slow and steady returns. My risk is that I might blow up from over exposure. Both risks are real. Both risks could happen. And both levels of risk have a lot to do with the type of personality you have.
I, myself, like to go big. But only when I know what I’m doing. This is what I did when I learned how to surf. I went as big as I could once I knew what I was doing and was pretty sure I wasn’t going to die! But getting there involved some nasty wipeouts.
The same is true for trading. You are going to lose money. You are going to lose time. You are going to get hurt. Financially and emotionally. It’s going to take guts to continue. It’s going to take persistence to continue. What you need to do is find out who you are and what you are willing to give.
Me, I have never been a jump in the deep end sort of guy — but I am the go for broke guy once I know how to get there. That’s what RetailTRADER is all about. Learning, preparing, then going for it — 1000%.
What About Blowing Up Your Account?
The fear of going big obviously brings up thoughts of accounts blowing up and going to zero. Because that’s a reality. A reality I wrote about in this blog post here. You can lose everything in your trading account. And then some.
But, your account can blow up both ways.
Instead of going to zero, your account can also go to the moon as documented by famous retail traders Dan Zanger, nicolas Darvas, William O’Neil, Timothy Sykes. You simply have to be prepared for either — and trade with capital you can accept going to zero. And I mean — really accept that scenario. Then dig your heels in and get ready to rock.
So tell me, what are YOUR trading goals? What do YOU want to achieve in the market? What are you willing to risk to get there? Only you can answer those questions.
Until next time…