Learn How to Lose and Risk Management

Learn How to Lose and Risk Management

One of the leading traders on Chicago Mercantile Exchange, because of a single trade lost everything!

For all of his years of experience and money, he had failed to master the most important concept in trading: Risk Management!

Each trader seems to have his own unique way of identifying market opportunities. One buys a stock in the hopes of never having to sell it, while another might hold a position in the market for a day or even just a few hours. Yet both individuals might be immensely successful in the markets. How can that be

Its because every trader who has been consistently successful in the markets has mastered the concepts of risk management.

Warren Buffets two rules of investing are:

1. Never lose money and

2. Never forget rule number 1!

Paul Tudor Jones says that he is always thinking about losing money as opposed to making money. He does not focus on making money; he is focusing on protecting what he has!

Jim Rogers, who for years was a partner with legendary hedge fund investor George Soros, said My basic advice is dont lose money!

Bernard Baruch, the renowned investor from the first half of the 20th century advised Learn how to take losses quickly and cleanly.

Yet, when most people start trading, the only thing they think about is the profit objective. Countless hours are spent on discovering how to buy and sell the market with unwavering accuracy. Once they buy a market, the amateur trader only thinks about how high is the market going to go. Little effort is put into considering how low the market could go, and where they should get out in order to control their losses.

These thoughts, which are so distant from the minds of most traders, are what separate the winners from the losers.

Risk management is the practice of determining what percentage of your account to risk for each and every trade in order to maximize the expected profit potential of your trading strategy.

Once this amount is determined, this percentage must be translated into an absolute value and stop loss orders must be placed once a trade is entered in order to control potential losses at this value.

There is no guarantee that such efforts will control your losses, since the market can gap in price beyond your stop loss order, resulting in losses greater than planned.

Ioannis - Evangelos C. Haramis was born in Greece in 1951 and he studied in Greece, USA and in Belgium. He has been active in the stock markets since 1972. Since 2002 he is New Business Development Managing Director at an Investment Bank and the editor of

To learn how to profit with your investments read:

Investing & Online Stock & Share Trading - The Stock & Share Markets are Booming But Be Warned

I had the pleasure of being invited on a friends yacht to sail in a race on Sydney Harbour yesterday. On board, as one of our motley crew, I met a top ranking corporate executive from one of Australias largest banks, who well call Phil here for the purpose of this article. After the race ended and after being told of my trading experience, he told me he has a large stock portfolio, many of which are speculative resources stocks. He said that hes excited by all the money hes making and wondering how long this has been going on

As would be expected, Phil also asked me for some hot tips for more stocks to buy. He was surprised with my reply when I told him Daryl Guppys standard response of Tips are for waiters and that I thought he was asking the wrong questions. (Daryl Guppy is a well known Stock Trader and International bestselling author - see www.guppytraders.com)

Rather, I explained he should be asking:

* How much longer will this last

* When it finishes how will I know & what will I do

* How do I find out about Technical Analysis and Money & Risk Management

* Whats a Trading Plan and how do I put one together and follow it

* How and when do I add to the stocks I already own

* How should I structure my portfolio regarding individual stock risk, sector risk and total portfolio risk

* Whats my exit strategy for each stock I own

* Whats my exit strategy for my whole portfolio

* How do I keep accurate records and monitor my performance

* What am I going to do to learn more about myself and my own psychological weaknesses (many of which I may not even realise I have) that can make all the difference as to whether I win or lose long term

Phil was genuinely surprised that I had taken the wind out of his sails luckily it was after our sailing race together, but hopefully before he loses his own financial race.

In January at http://www.prweb.com/releases/2005/1/prweb193459.htm I issued a worldwide press release to caution unprepared novice investors and traders of the potential pitfalls ahead in the market. My wife Angela and I lost our waterfront home on Sydney Harbour in the Tech wreck of 2000, so we speak from hard personal experience.

As complete novices in the market in 1999, we doubled on paper a large stock portfolio in only six months. Then in less than a year we suffered catastrophic losses in the tech stock crash of 2000 and beyond:

* We were set back more than 15 years financially and emotionally

* We were forced to sell our waterfront home the very same house we had set as a goal soon after arriving in Australia as new and penniless immigrants in 1979. We began renting what I called a dog box - as the housing market then rocketed.

* Angela was working as a retail assistant

I have a First Class Honors Degree in Civil Engineering that didnt help. In fact I have since come to understand that it actually helped to work against me. With our experience of riding some of the largest waves (up and down) in the market and having lost hundreds of thousands of dollars in the process, we know more than most stock traders in the world of the pitfalls that await unsuspecting novice traders and investors.

We have since greatly appreciated being exposed to the successful methods taught by expert traders Alan Hull, Daryl Guppy, Jim Berg, Dr Van Tharp and others to trade profitably and with better risk control.

The forum for serious investors www.stockmeetingplace.com is the only chatroom where you will find Daryl Guppy. We recently received the following response from a fellow Australian trader Nathan Unger on that site (see below):

...thank you for sharing. Your comments on this subject are very insightful, and rightfully so considering your near trading death experience, per se. Failure is always such a difficult moniker to be branded with, for it involves us having to acknowledge that we were wrong. Of course, acknowledging our mistakes means that we must swallow our pride an admittedly difficult feat for many traders. Grappling with our own motives amidst the psychological matrix that is the stock market is, to say the least, a bewildering struggle.

In an almost paradoxical fashion the stock market can create whelps out of us through both our losses as well as our victories. We are unnerved when we lose and must somehow muster the courage to tentatively re-enter the markets. Yet, potentially even more dangerous are the unbridled successes that often distort a traders perception about their ability to regulate further success successes that work to chide the future admission of failure.

Who would have thought that winning could actually become a setup for losing a conundrum of the worst kind I know of no other occupation that has the ability to masquerade as both friend and foe and then make you think that you can tell the difference.

Your experience is, I believe, a treasure worth perhaps more than the sum of your losses. It reminds me of how the most seaworthy vessels have typically been known to be the ones that have weathered the most devastating storms. Yours is a stellar effort, my friend. I will most certainly be purchasing your book.

Thanks also to Daryl and Alan for their assistance and encouragement in helping to mould Johns encounter into the best trading tool of all practical experience...

During 2001, not long after losing our home, we made contact with Daryl and I take this opportunity here to acknowledge and thank him once again for his wisdom and support since that time and also to Alan Hull and Dr Van Tharp since then. Daryl subsequently invited me to write a short article for his regular weekly newsletter (Tutorials in Applied Technical Analysis) which became the first of many articles as my wife Angela and I began our search for education.

He made a strong point that by concentrating on the research needed to write the articles we would pick up good habits and through sharing with others, we ourselves would be more inclined to stick with the discipline involved in the subject being covered.

We have recently collated the articles I have written for his newsletter and they are now available as The Atkinson - Guppy Articles - Stock Market Educational Options for Investing Online & Online Trading - Opportunity for a Home Based Business. Most of these articles deal with concepts and trading skills which are still relevant to readers today and include the following:

* CONDITIONAL STOP LOSS ORDERS: A real life comparison between using two brokers for monitoring stop loss orders - the true cost of slippage

* DIRECTORS DEALINGS: A snapshot study of the Australian share market to determine, if by monitoring the purchases and sales of company directors with their own shares, whether it is possible to obtain an insight into the future direction of the share price and hitch a ride in the right direction - or jump ship with them.

* EXPECTANCY - the net profit or loss that you can expect over a large number of single unit trades. A series of articles with thanks to the work of Dr Van Tharp, author of Trade Your Way to Financial Freedom

* TAKE-OVERS: A brief overview of some of the strategies traders apply to take-overs.

* AVALANCHE SELLING and KANGAROO TAILS: A series of articles on the recent phenomenon in the Australian share market caused by computerised automated conditional stop loss brokers savagely cascading sell orders into the market, with prices often rebounding several percent within minutes

Through my writing articles and through our site, my wife Angela and I now aim to provide a Road Map of Discovery to the Stock Market to help new and existing online investors and traders find the trading education information they need to initially survive the pitfalls ahead, then to thrive in the market.

We wish you every success in 2005 and beyond and trust that if you havent done so already, you will be seeking out the answers to the questions I offered to my sailing team member Phil.

This article was printed in Alan Hulls weekly newsletter ActVest for Active Investors in March 2005 (available from www.alanhull.com) and is reprinted here with Alans permission.

John Atkinson is the co-editor of the world famous Investing & Online Trading stock market newsletter, featuring weekly stock trading education for novices & experienced traders & investors by high profile trader authors Jim Berg, Daryl Guppy, Dr Brett Steenbarger & Dr van Tharp.

His previous ebooks include 7 Secrets to Profitable Online Stock & Share Trading and the Atkinson -Guppy Articles - a series of articles written for Daryl Guppys newsletter Tutorials in Applied Technical Analysis, previously voted no 1 trading newsletter in Australia by Shares & no 4 in the world by Stocks and Commodities.

Johns co-authors the new ebook The Stock Trading Template which shows traders how to build their Trading Plan, with input from Tim Wilcox Jim Berg, Daryl Guppy & Dr Brett Steenbarger.

A free copy will be give to all Investing & Online Trading stock market newsletter Members when released in February 2006.

For a Free trial membership & Free sample ebook chapters visit & join the free stock market club at

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