Control your risk

Controlling risk is No 1 job for a trader

Controlled risk taking is the name of the game if you want to make money and keep it in the market. If you do not have a good strategy for managing risk  sooner or later you will blow up. It is just matter of time.

The market has phases when risk is lower and you can be very aggressive and it has phases where you have to be way cautious. Best traders over the years develop strategies and tools to "anticipate" risky periods.

You have to anticipate danger while you are 25 miles from it not when you are few feet from it. This is where real skills in trading comes in. Traders who prosper for years develop indicators and tools to identify such periods and then reduce exposure aggressively  or change their trading approach to reduce risk.

Personally I use the Market  Monitor to control risk. It signalled this pullback ahead of time on 11/24/2015  when the number of stocks up 50% plus in a month climbed above 20. There was further confirmation when other indicators started turning negative and series of big volume days. By that time I was already in cash and only looking for short term intraday trades. As a result I manged to keep my account intact without giving up too much profits.

Market breadth is one of the ways to develop market timing tools , there are many other ways to do it also. Key is to have very sound risk management strategy, absent that you will lose big money. When you lose big money it affects your mood , your family , your health.

If you want to make and keep money trading remember your number one job is risk management. How you handle risky periods will determine your long term profits and survival.