Risk Management Part 1: The Nature Of Risk

Mark focuses on his trading plans and the two factors that are significant for winning over the long trail: stability and risk management. Risk management is the most important structure for achieving constant success in the stock market.

To achieve constant profit, you must preserve your profits and principal. There is no difference between the two because once you make a profit, that money belongs to you. Previous day's profit is a part of today's principal.

Once a stock reasonably moves from the purchase price, you should give it less space for the downside. You should get into a profit-protection mode to protect your breakeven point. Analyze your stocks based on the expected return versus the risk. Every day, a stock must rationalize your belief in holding it for a greater profit.

Adhering to sound risk-management principles will allow you to keep the acquired profits and will also keep you grounded when you become over ambitious after a successful period.

You should remind yourself that executing the basics properly is the key building block for success. Fundamental principles lay the solid foundation for greatness. Never authorize yourself to lose an amount that would endanger your account. A large loss is very difficult to recover.

The first discipline is to accept the market's judgement to stay clear of its wrath. It is very simple to comprehend but extremely difficult to perform regularly.

Irrespective of the method you use, there is just one way to protect the portfolio from a large loss. It is to sell a position with a small loss before it converts into a huge one. Resisting huge losses is the solitary important factor for winning big. 

The stock price is not under your control, however, taking a small loss or a big one is purely your choice. 

Investors rationalize because they hate to admit mistakes. They fluctuate from being traders when they’re right to becoming investors when they are wrong. Don’t become an involuntary investor.

In the stock market, you have a wonderful advantage of staying aside free of cost, observing and waiting for the most suitable moment to bet. Yet very few exploit this advantage. 

Market has its own ways of creating pressure to make you feel foolish.  Still you have to remain disciplined and cut your losses. For everlasting success in the stock market, you must understand that it’s more important to make money than to be right. Your ego should be left behind.

Losses are a part of trading and investing and if you are not capable of dealing with them, then eventually you will have to deal with huge losses.