9 Risk Control Trading Tips From Some Of The Best Traders To Ever Live
When you search for trading advice, what are you looking for? A new strategy or how to make a lot of money quickly?
What if some of the most valuable and life-changing trading advice from some of the most successful traders was actually about preserving money, instead of making it?
In trading, the mindset often takes the path of greed and making money. My mind was consumed over the thought of money when I started trading, which quickly led to big problems.
The mindset shift from trying to make money to trying to preserve your money will change everything.
Here are 9 quotes from successful traders that talk about the extreme importance of risk management:
“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have”
— Paul Tudor Jones.
Note: Focusing on capital preservation over money and greed will keep your mindset on the right path.
“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.”
— Ed Seykota
Note: Always be willing to cut losses short!
“You have to learn how to lose; it is more important than learning how to win.”
— Mark Weinstein
“I don’t think you can consistently be a winning trader if you’re banking on being right more than 50 percent of the time. You have to figure out how to make money being right only 20 to 30 percent of the time.”
— Bill Lipschutz
Note: It is so important to have a strategy that allows you to make money even when your win percentage is below 50%.
“Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don’t take a hard look at risk, it will take you.”
— Larry Hite
“Letting losses run is the most serious mistake made by most investors.”
— William O’Neil
“When I get hurt in the market, I get the hell out. It doesn’t matter at all where the market is trading. I just get out, because I believe that once you’re hurt in the market, your decisions are going to be far less objective than they are when you’re doing well… If you stick around when the market is severely against you, sooner or later they are going to carry you out.”
— Randy McKay
Note: Don’t be afraid to get out of a trade at any point. Preferably, sooner rather than later.
“When I became a winner, I said, ‘I figured it out, but if I’m wrong, I’m getting the hell out, because I want to save my money and go on to the next trade.”
— Marty Schwartz
These quotes are fantastic at pointing out the importance of proper risk management in trading. If the best traders in the world are preaching its importance, it is definitely something worth considering to adopt into your plan.
As mentioned in the introduction, most novice and beginning traders focus on profit instead of protection. They try to avoid losses instead of minimizing them.
It is crucial to maintain all the progress made in the markets and that you don’t often send yourself back to square one. If a trader is willing to put everything on the line in an attempt to make big money, they will soon regret that decision.
You’re lucky to have a strategy that works 5/10 times, so it’s important to make sure you have a system that cuts your losses short and lets your winners ride.
Your best bet is to have a trading plan, stick to it, and always control risk to what you’re comfortable with. I generally recommend no more than a 2% risk per trade, but it is entirely up to what suits you the most.
Also, make sure you always use a stop loss to protect yourself from unexpected moves in the markets. Having a physical stop loss instead of a mental one helps remove more emotion and make it much easier to get out of the markets quicker when the odds aren’t in your favor.
There is nothing wrong with risking money to make money in the financial markets, until you risk more than you’re willing to lose.
Happy Trading!
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