Risk Management is King

Behind the flashy side of trading: All the brand-new indicators being released, “new” and exciting trading strategies, and "top secret" knowledge you have to pay an arm and a leg just to uncover the so-called "truth" to make a tremendous amount of money in such a short period that you, yes you! can buy a brand-new sports car in no time. There, the King hides. 

In fact, it is not as glamorous to talk about as the above-mentioned messages you could often hear and watch on social media advertisements. Nevertheless, it reigns supreme in the minds and hearts of successful traders and investors throughout history. But what is it? and why is it considered the "King"? 

In trading, “Risk Management” can be defined as a system put in place to minimize losses. Its main purpose is to protect your capital from the potential huge swing of losses brought by the Market going against your bias. Because, you will be wrong, a lot of times. It does not matter who you are and what your IQ is. No one can ever consistently and accurately predict where the market is heading. 

In my twenty years of trading, nothing is more instrumental to my success than prioritizing Risk Management above all. I could never become a consistently profitable trader if I never had a risk management system put in place. In fact, in my first year of trading, I never prioritized risk management. I used to ask myself "Why should I?". If my analysis is correct then why should I think about the risk involved? I will prove to everyone that I am right! Well, suffice to say, in my first year of trading, the only thing bigger than the losses I incurred was my ego. 

I learned the hard way that where the market goes is beyond our control, the only thing we can control as traders are how much risk we are willing to take. We can control how much capital we are willing to expose in each trade. Ultimately, we can control how much we are willing to lose when we are wrong. 

I soon realized that it was more important to consistently make money than it was to prove that I am right. Risk Management is King since before you yearn for huge profits, you have to protect your capital first. The key to being a consistently profitable trader is to make sure you minimize your losses on your unprofitable trades to be easily offset and exceeded by the profitable trades you make. 

In consummation, trading must be treated as a business. In a business, you set systems in place and methodologically approach things. You always respect the risks associated with your operation and manage them accordingly. For one unforeseen mistake could mean the end of a business. 

“Successful traders are not just traders; they are risk managers above everything else" – Jason Cam