Success stories that become nightmares
We have all heard of some fantastic success stories in the market whether it is your colleague who brags about how he doubled his account in 1 month or some teenagers who become t millionaires playing currencies. You then decide to open an account and bet your kids' entire school fund on some great penny stock supposed to triple in price that your colleague told you about. Next thing you know, you've lost half of the account and sell it at a whooping loss feeling disgusted with yourself.
Why should I care about Risk Management?
Unfortunately, this kind of scenario happens all of the time. That's where risk management comes in as our savior. Sadly lots of investors think of it as not necessary for them, after all they know better, right? Not! As people think of it as not an important element to be successful in the market, I considered it as the number one criteria. That's right! Not "What stocks to own" or "When to buy". These come in second. You can even make money trading by choosing stocks randomly if your winners are bigger than your losers. That shows you the importance of implementing Risk Management and Position Sizing in your trading. These two elements will minimize your chances of blowing up your account overnight. It will permit you to still be alive another day to fight the market and that even if you are experiencing a losing streak, as it happens to all of us at some times. Remember Warren Buffett's quote: "Rule number 1: Don't lose money. Rule number 2: Don't forget rule number 1".
Learn from the Investing Legends advices
Few people, even some experienced ones, are able to grasp the idea that not losing money is actually winning. Investing legends Nicolas Darvas and Jesse Livermore, both understand it very well. They both created their own set of rules to make sure that when they were wrong they would lose the least amount of money.
Livermore make sure to bet is money only when the odds of winning were bigger than the odds of losing. He used to say that "No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his play an intelligent play". If it was good advice for Livermore to amass millions, it is certainly good advices for you and me. The only thing that beat him was when he decided to not follow his plan and be a "Jack-of-all-trades". What it means is only play the market when all your indicators dictate so and leave the "Jack-of-all-trades" game to the others.
For Nicolas Darvas, it was the use of his "Darvas Box" that protected his capital. This great tool made sure he was in when stocks were rising in a higher "Darvas Box" and out as soon as stocks were breaking down of it. It also put him out of the down market of 1957 as all his positions broke down their own "Darvas Box". He was then able to keep most of his gain even as the stock market was going down.
Source
We have all heard of some fantastic success stories in the market whether it is your colleague who brags about how he doubled his account in 1 month or some teenagers who become t millionaires playing currencies. You then decide to open an account and bet your kids' entire school fund on some great penny stock supposed to triple in price that your colleague told you about. Next thing you know, you've lost half of the account and sell it at a whooping loss feeling disgusted with yourself.
Why should I care about Risk Management?
Unfortunately, this kind of scenario happens all of the time. That's where risk management comes in as our savior. Sadly lots of investors think of it as not necessary for them, after all they know better, right? Not! As people think of it as not an important element to be successful in the market, I considered it as the number one criteria. That's right! Not "What stocks to own" or "When to buy". These come in second. You can even make money trading by choosing stocks randomly if your winners are bigger than your losers. That shows you the importance of implementing Risk Management and Position Sizing in your trading. These two elements will minimize your chances of blowing up your account overnight. It will permit you to still be alive another day to fight the market and that even if you are experiencing a losing streak, as it happens to all of us at some times. Remember Warren Buffett's quote: "Rule number 1: Don't lose money. Rule number 2: Don't forget rule number 1".
Learn from the Investing Legends advices
Few people, even some experienced ones, are able to grasp the idea that not losing money is actually winning. Investing legends Nicolas Darvas and Jesse Livermore, both understand it very well. They both created their own set of rules to make sure that when they were wrong they would lose the least amount of money.
Livermore make sure to bet is money only when the odds of winning were bigger than the odds of losing. He used to say that "No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his play an intelligent play". If it was good advice for Livermore to amass millions, it is certainly good advices for you and me. The only thing that beat him was when he decided to not follow his plan and be a "Jack-of-all-trades". What it means is only play the market when all your indicators dictate so and leave the "Jack-of-all-trades" game to the others.
For Nicolas Darvas, it was the use of his "Darvas Box" that protected his capital. This great tool made sure he was in when stocks were rising in a higher "Darvas Box" and out as soon as stocks were breaking down of it. It also put him out of the down market of 1957 as all his positions broke down their own "Darvas Box". He was then able to keep most of his gain even as the stock market was going down.
Source
