Saturday, March 5, 2011

Resist the Lure of High Risk


“For one or two trades, luck can play a part. Beyond that, luck has nothing to do with successful trading.” – Joe Ross

“A lucky outcome, such as winning a lottery, is not a skilled performance.” - Brett N. Steenbarger


What do you think is more important, not going broke or getting rich quickly? Most marketers however, would want to make you think that getting rich quickly is what matters. These deceptive marketers come to you as helpers who have solutions to your trading challenges, but in fact, what you’ll learn from them is a recipe for financial disaster. There’s nothing bad in trying to market any services that can help other traders achieve better results, provided people are told the right things about trading. For example, a marketer showed how an account has grown by 500% in 6 months, with high risk settings. Plus, the starting capital was $500 and the volume of the first trade was 0.2 lots. Are you kidding me!

I don’t want to go into numerous examples of high risk settings. As a trader, you should know the amount of risk for each of your trade. You should know if your risk is too high or low enough. The purpose of this article is to show you how you can resist the urge to use high risk.

Once again, professional traders go for small and consistent results whereas gamblers go for jackpots. Such gamblers dream of making it big or striking it rich with seemingly easy trades, without realizing the price they’d eventually pay for such high risk. If you’re using high risk, you need to make adjustment to your position sizing.

Many traders fail to see the link between their position sizing and their trading results. You ought to avoid position sizing strategies that needlessly shorten the life span of your capital and impair its longevity. If your trading results are poor, then you must make adjustment to your risk parameters. When you make safer adjustments to your position sizing strategy, setting reachable goals for yourself, things would improve gradually.

Eliminating long-standing wrong mindset can be daunting, and making even small adjustments to your risk parameters often requires strong motivation. Even the threat of margin calls and financial catastrophe wouldn’t move some to take effective risk management seriously. It normally takes time – weeks or months – before a normal trading mindset becomes second nature. In the meantime, if you don’t see immediate benefits from your extra efforts to do the right things on the markets, don’t despair. If you persist, in spite of setbacks, your trading results are likely to improve.

Assessing the Dangers of High Risk

Before you use high risk settings for your first or next trade, please pause and think. You oughtn’t to be like a quail going into a snare because of a bit of food. True, there may be a short-term reward for doing that, but what a price it pays eventually! Would you want to be like a quail which fails to see the danger of something attractive but deadly?

When people ask me why I don’t use high risk, I’d answer: “Because I don’t want to suffer a huge drawdown and shorten the life span of my trading portfolios.”

Despite being aggressively tempted to use high risk by some marketers; you may find that the greatest pressure comes from inside yourself. If that’s the case, answer your ‘inner voice’ by reasoning on these questions: What would I gain in the long run by using high risk? For instance, if I want to get rich quickly, would I survive long on the markets? Am I not being lured by those who tempt me to damage my trading account? How much would high risk cost me per trade? Can I survive a few losing trades in a row with this high risk? Would other traders respect me again if I had significant losses? Would I be willing to blow my account because I want to satisfy my greed?

Taking Steps to Abandon High Risk

1. Document the benefits of using low risk, and call these benefits to mind regularly. A desire to permanently keep you trading portfolio safe despite market uncertainties can be a powerful motive.

2. If you’d been using high risk, now is the time to stop it. You may request the help of experienced trading risk managers, and let them know about your trading activities. They can lovingly guide you.

3. If you find it difficult to quit using high risk parameters immediately, stop trading temporarily and give yourself 2 weeks or less, and note the day you’re going to quit. Please honor your plan.

4. Get rid of anything whatever – books, newsletters, online services and websites – that encourage high risk.

5. Stop dealing with any professed trading experts who don’t seem to know what risk management is all about or who fail to show it in their trade examples.

6. Temptations to use high risk would always come to you. Never use high risk because you’ve been told that one trading system is ‘a Holy Grail’ or because you’re confident one trade would move in your favor. The discomfort in using low risk settings may be temporary, while the benefits are permanent.

7. Never fool yourself by thinking. “I’ll use high risk on this one trade. Such rationalization may lead to a relapse to using high risk constantly again, especially if that ‘one trade’ ends in a big win.


Sly marketers show huge profits (often arising from high risk) to attract unwise traders. Why take their bait? Neither those who encourage the use of high risk nor those who present their trading systems as being magical (with unreasonable guarantees) have your best interest at heart. Rather than listen to them, try to delve deeper into the principles of effective risk control strategies. This will benefit you greatly. Coping with temptations to use high risk is much easier if you’re aware of its dangers. Why not contact a known risk management expert for further assistance?

NB: A great trading lesson would be revealed in my Weekly Trading Update (March 11, 2011) and the article next Sunday is titled: “Clarifying Your Issues – Part 4.” An article about effective gap trading in Forex is also coming soon (but only my clients would have access to the account on which it’s being traded).

This article is ended with more quotes from Joe Ross:

1. “If you are too busy to be disciplined, then you are too busy to trade. If you don't discipline yourself, you will soon disappear from the trading scene.”

2. “I feel a trade is successful if it has met my trading goals—which are not necessarily money goals. Sometimes you need to know that you did what you were supposed to do, even though you had a loss on the trade.”

3. “Most advertisers of courses, systems, books, etc., will mislead you into thinking that you just can’t lose if you buy what they are selling. We are talking here about hype, major hype – as much as the authorities will allow them to get away with… Find out everything you can about markets and how they work before you start trading. Do not look for anything magic, it doesn’t exist.”

Your questions and opinions are highly welcome.

Thank you.

With best regards,

Azeez Mustapha

Forex Signals Strategist, Funds Manager &Coach

Senior Analyst

FX Instructor, LLC


Yahoo! Messenger ID: saazalmu

Are you facing any challenges in trading? You might want to explore the secrets of markets wizards and duplicate their success. Get the secrets from my past articles at:

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NB: There is risk of loss in trading, but it is possible to be a successful trader.

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