Playing great defense is key to profitable trading | stockbee

10/13/2014

Playing great defense is key to profitable trading

Traders who survive and prosper over lifetime learn the value of playing great defense. If you do not have great defense sooner or later you will be out of the game. One big bearish move and you will get wiped out.

Many people spend lot of time taking their account up and then in few weeks end up giving up all the profit and go in to drawdowns. They become aggressive at exactly the wrong time. Once they hit loss, they become more aggressive hoping to recover loss in few large trades.

There are also some traders who do not have any concept of risk and play with margin. Typically they will be using full margin all the time. When market hits bearish phase like this , they quickly land in soup and lose lot of money in short time period. many of them get margin calls. When hit with margin calls instead of closing the position , they add more money and then it leads to more losses. People who have businesses and other sources of cash flow make bad traders because of this problem. They are great source of income for brokers.

If you want to survive as a trader learn great defense. Most of good traders avoid certain market periods and are aggressive when market conditions are right. Great defense involves learning to get out of loss making trade at first small loss. Great defense means first thinking how much can I lose on this trade. Great defense also comes from having well thought out methods to find trades and not relying on rumors and CNBC to make trades.

Every year thousands of traders blow up because they lack great defense. 

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