Without question, one of the key skills a trader must possess in running a trading business is  effective risk managerment. When a trader is trying to time the market, it is paramount to align the decision to initiate a position with price action. The trader must consistently be able to get a good market reading while keeping in mind that the primary goal is to time the trade so that the account is exposed to the minimum amount of risk for a potential large reward.

It is important as a risk manager to get in tune with the markets rather than forcing your own set of beliefs upon them. For instance, when a particular market does not provide clear direction, the correct move should be to remain on the sidelines and preserve capital until low-risk opportunities present themselves. The greed emotion can prevent a trader to ignore risks being undertaken until it is too late.

The long-term success of a trading business emanates from preservation of capital during times of market uncertainty and the having that capital ready to mobilize when the market demonstrates favorable conditions for the particular trading approach being followed. The best traders know that you really only need a handful of strategies to be able to achieve consistent profits.  

For a trader to successfully manage risk, solid discipline must be developed. This includes being willing to accept full responsibility for all trading actions. Trading will be a frustrating endeavor for the individual who expects perfection and constantly makes excuses when perfection is, inevitably, elusive. Traders must have flexibility of opinion and realize that trades will not always work in their favor. Many times new traders fail in the markets because they cannot admit that it is they, not the market, who are wrong when a position goes against them.

As a risk manager, you as a trader need a well thought out trading plan that accounts for all potential scenarios. This will help prevent making impulsive and emotional decisions. Trading stocks and options is absolutely a business and if you want your trading business to prosper, you must have a plan that you execute flawlessly and effectively manage risk.

Happy Trading.


Jeff Neal 
Senior Writer, Options Strategist & Profit Strategies Radio Show Market Correspondent
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