Trading psychology – Risk Comes First

By Jack Wong
Optionetics.com.sg

Singapore is a competitive country. If you read newspaper everyday, I am sure you are aware of a variety of trading courses – options, forex and futures etc. Before you get yourself educated, have you ever asked yourself this question – why do you want to be a trader?

Last week, I talked about the importance of trading psychology, which is the main driver leading to your success in a trading business. Let me ask you this question. Suppose you own a Ferrari. Are you dared to drive it on a highway now? Some of you may say “Yes, why not? It is a Ferrari. It is my dream car.” However, some of you may say “Hold on for a second. I am not trained to drive a racing car before. I’d better learn how to drive a racing car first.” See, you have two different groups of people here. Now, let me ask you this question. Which group do you think you are in? Your answer is a direct reflection of your risk appetite and your trading personality. You must understand that each of us is different in terms of our risk appetite. Some people are aggressive and some are not. There is no right or wrong answer here.

So, one key element in your trading psychology is to understand risk first, way before you look at the potential reward of a trade. Very often, when a beginner evaluates a trade, he tends to first consider the potential reward. If it is acceptable, he will place the trade. When you ask him whether he has considered the risk involved, he may say “Hmm … not really.”

Successful traders think differently. They will first consider the risk involved. If it is not acceptable, they will pass the trades and look for another opportunity. So, an important lesson you must learn as a trader is to consider this question “what if you are wrong, what is your risk?” Students in Optionetics should be familiar with this phrase. Why? It is because it comes from Mr. George Fontanills, the founder of Optionetics.

In Optionetics education, our traders are taught to identify low risk and high profitable trades. However, one key element we teach our traders is no matter how ‘low’ the risk is, they must be comfortable with the risk involved. If the risk is deemed ‘not low’, they should pass the trade and look for other opportunities. Remember, successful traders are risk managers, and not baseball players who are looking for home run and score three points.

You can find out more on Optionetics education by visiting our website at http://www.optionetics.com.sg.

Jack Wong
Staff Writer
Optionetics.com ~ Your Options Education Site