Giles Coghlan LLB, Lth, MA
Financial Source
There is a number of common human weaknesses that mean it can be hard for us to manage risk. Sometimes, if we are in a vulnerable situation, we can look for one single financial answer such as putting on one big, risky trade. Other times we may struggle to recognise when we are wrong in our trading decision and we keep moving our stop loss further and further away. The impact of not managing risk is profound and we look at some of the impacts below.
-
You will stop trading. If you find yourself unable to manage risk eventually you will stop trading. This can be very frustrating for a trader who was managing risk and making money, but in one reckless move loses all their profit and some more. A failure to manage risk is one of the biggest reasons traders quit trading.
-
Personal impact. If you lose a significant sum of money, by not managing risk, you will damage your state of mind. You also risk putting relationships with your family under strain if you have been responsible to manage risk for the family.
-
You have a big profitable trade, but watch out. Strangely, by not managing risk properly, it can mean you have a very large outsized winning trade. You may feel elated, and so happy. However, watch out! The same reckless behaviour that led to you making a large amount of money can also lead to you losing a large amount of money.
-
Stress. By not managing risk your equity will have large gains and falls. This is incredibly stressful to manage if you are seeing significant peaks and troughs in your equity curve. The high stress is unpleasant and living this way over the medium term runs the danger of impacting your long term health.
-
Preoccupation with trading. Risking too much can often result in a trade on that you can’t stop checking. Every few minutes you look at the trade, you can’t sleep properly and check the position overnight. Perhaps you can’t spend time with your family properly because your trading is always in your mind. Being passionate about trading is fine, but being preoccupied with your trading is detrimental.
So, always make sure you manage risk. You can adopt a patient approach to trading but put in some good habits so that you mitigate the impact of taking risk.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Editors’ Picks
EUR/USD met some decent resistance above 1.0700
EUR/USD remained unable to gather extra upside traction and surpass the 1.0700 hurdle in a convincing fashion on Wednesday, instead giving away part of the weekly gains against the backdrop of a decent bounce in the Dollar.
GBP/USD struggles to hold above 1.2450 in choppy session
The Pound Sterling is experiencing slight losses against the US Dollar, largely due to the influence of high US Treasury yields that are bolstering the Greenback. This trend was fueled by the release of economic data, which showed that Durable Goods exceeded expectations, leading to a surge in US yields and a favorable environment for the USD.
USD/JPY refreshes 34-year high, attacks 155.00 as intervention risks loom
USD/JPY is renewing a multi-decade high, closing in on 155.00. Traders turn cautious on heightened risks of Japan's FX intervention. Broad US Dollar rebound aids the upside in the major. US Durable Goods data are next on tap.
Editors’ Picks
AUD/USD failed just ahead of the 200-day SMA
Finally, AUD/USD managed to break above the 0.6500 barrier on Wednesday, extending the weekly recovery, although its advance faltered just ahead of the 0.6530 region, where the key 200-day SMA sits.
EUR/USD met some decent resistance above 1.0700
EUR/USD remained unable to gather extra upside traction and surpass the 1.0700 hurdle in a convincing fashion on Wednesday, instead giving away part of the weekly gains against the backdrop of a decent bounce in the Dollar.
Gold keeps consolidating ahead of US first-tier figures
Gold finds it difficult to stage a rebound midweek following Monday's sharp decline but manages to hold above $2,300. The benchmark 10-year US Treasury bond yield stays in the green above 4.6% after US data, not allowing the pair to turn north.
Bitcoin price could be primed for correction as bearish activity grows near $66K area
Bitcoin (BTC) price managed to maintain a northbound trajectory after the April 20 halving, despite bold assertions by analysts that the event would be a “sell the news” situation. However, after four days of strength, the tables could be turning as a dark cloud now hovers above BTC price.
Bank of Japan's predicament: The BOJ is trapped
In this special edition of TradeGATEHub Live Trading, we're joined by guest speaker Tavi @TaviCosta, who shares his insights on the Bank of Japan's current predicament, stating, 'The BOJ is Trapped.'
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
Discover how to make money in forex is easy if you know how the bankers trade!
5 Forex News Events You Need To Know
In the fast moving world of currency markets, it is extremely important for new traders to know the list of important forex news...
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and...
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.