Risk Management In The Real World
by Ajay Jani
An experienced trader takes his lumps in the market, but still comes out ahead. How? Prudent risk management.
In order to generate long-term investment success, traders must adhere to several time-honored trading principles. Bruce Babcock summed up these principles concisely in his Four Cardinal Principles Of Trading:
1 Trade with the trend.
2 Cut losses short.
3 Let profits run.
4 Manage risk.
No trading methodology is 100% accurate. Thus, it is important not to place all of your capital at risk on any given idea. When an idea is correct, you must let it work as long as possible to generate the large returns necessary in order to offset the inevitable losing trades. Here are some real-life examples of both winning and losing trades, and how my risk management of these trades resulted in overall profitable trading, even though 50% of the trades resulted in losses.