Learn How to Lose and Risk Management

One of the leading traders on Chicago Mercantile Exchange, because of a single trade lost everything!

For all of his years of experience and money, he had failed to master the most important concept in trading: Risk Management!

Each trader seems to have his own unique way of identifying market opportunities. One buys a stock in the hopes of never having to sell it, while another might hold a position in the market for a day or even just a few hours. Yet both individuals might be immensely successful in the markets. How can that be?

It's because every trader who has been consistently successful in the markets has mastered the concepts of risk management.

Warren Buffet's two rules of investing are:

1. Never lose money and

2. Never forget rule number 1!

Paul Tudor Jones says that he is always thinking about losing money as opposed to making money. He does not focus on making money; he is focusing on protecting what he has!

Jim Rogers, who for years was a partner with legendary hedge fund investor George Soros, said "My basic advice is don't lose money!"

Bernard Baruch, the renowned investor from the first half of the 20th century advised "Learn how to take losses quickly and cleanly."

Yet, when most people start trading, the only thing they think about is the profit objective. Countless hours are spent on discovering how to buy and sell the market with unwavering accuracy. Once they buy a market, the amateur trader only thinks about how high is the market going to go. Little effort is put into considering how low the market could go, and where they should get out in order to control their losses.

These thoughts, which are so distant from the minds of most traders, are what separate the winners from the losers.

Risk management is the practice of determining what percentage of your account to risk for each and every trade in order to maximize the expected profit potential of your trading strategy.

Once this amount is determined, this percentage must be translated into an absolute value and stop loss orders must be placed once a trade is entered in order to control potential losses at this value.

There is no guarantee that such efforts will control your losses, since the market can gap in price beyond your stop loss order, resulting in losses greater than planned.

Ioannis - Evangelos C. Haramis was born in Greece in 1951 and he studied in Greece, USA and in Belgium. He has been active in the stock markets since 1972. Since 2002 he is New Business Development Managing Director at an Investment Bank and the editor of http://www.greekshares.com/

To learn how to profit with your investments read: http://www.greekshares.com/orderbook.asp

C opyright © 2005 I.E.C. Haramis

haramis@greekshares.com

---

Shareholders Meeting Changing With Times

A significant number of corporations that settled accounts in the past year are ready to hold their annual shareholders meetings.In this year's meetings, more than 300 companies... Read More

Planning Starts with the Basics

When developing a plan for your finances, the toughest question often is: "Where do I begin?" Before investing in stocks and bonds or buying life insurance, before... Read More

The High Price of Oil

In less than four years, the price of oil has risen about 300%, or over $50 a barrel. The Light Crude Continuous Contract (of oil futures) hit... Read More

Investing In Sons Business Could Cause A Real Family Feud

Q: My youngest son wants to borrow $5,000 to start his own business. My wife is afraid to tell him no. She thinks we should just give... Read More

The Biggest Oil Opportunity in the World ? And How You Can Profit From It

Where is the second biggest deposit of oil reserves in the world?In the oil sands region of Alberta, Canada. Oil sands are a thick, viscid mixture of... Read More

Creating a Financial Future - Putting Your Plan Into Action Part 1

This column has previously discussed "picturing the future that we desire", and outlining a plan to achieve it. We mentioned that the plan must include goal-setting, measurement,... Read More

25 Ways to Find Companies to Buy

When you start your program to purchase your "ideal" company, you quickly realize that your ultimate success will depend on two primary skill sets: 1) Your ability... Read More

Stock Market Horizons: Gold $3,000, Oil $70

In the last two decades, even though gold prices have dwindled from $850 to $350 an ounce, there are still market gurus who predict gold price to... Read More

Diversify!

The best way to avoid being hit hard by a stock market crash or another Enron/Worldcom fiasco is to make sure you don't put all your eggs... Read More

Day Trading Strategy or Stock Trading Software? The Way You Pick Stocks Affects Your Results

The trading method you employ to approach the stock market can make a big difference in your results.Stock trading is a very competitive field and in order... Read More

Who Wants To Be A Millionaire?

I am sure you have probably read about the power of compound interest. And how if you invested $10,000 at 10% return and let it compound for... Read More

The Basics of Tax-Free UK Financial Spread Betting

Financial Spread Betting (or Trading) offers a tax free method of speculating on financial markets.Quite simply, if you think a particular index, share, commodity, currency or sector... Read More

Scots Beat Yanks in China Bank Deal

With visions of an ATM in every neighborhood in China, foreign banks and investment firms are queuing up to join the "China Club."Moneybags CommunismThe initiation fee for... Read More

June 2005: Weather Forecasts for Weather Traders

If Johannes Kepler, the renowned 17th century astronomer and discoverer of the planetary laws of motion, could speak from the heavenlies, he might have a few words... Read More

Larry, Moe and Curley, Investment Brokers

Larry, Moe and Curley were sitting in their favorite restaurant just off Wall Street having their usual 3 martini lunch and were discussing the day's events and... Read More

What is an Investor Ready Business Plan

A Business Plan, as all good entrepreneurs starting out in life should know is the foundation, or rather a springboard, towards the establishment and growth of a... Read More

Success Trading for New Traders: What Does Bid and Ask Mean?

Do you ever wonder exactly what's going on in the trading pits after you've sent an order to purchase stock? You've no doubt seen market quotes either... Read More

Before You Start Investing

There maybe several reasons why you to want to invest your money. You may want to retire early, want to build your own business in the future,... Read More

A Safe Port For Mutual Funds But Not You!

Soft dollars, a form of legal kickback, is a sly way you can get ripped off by mutual fund managers. Full service brokers give these kickbacks to... Read More

It?s Never too Early to Start Investing!

Remember the old saying, "never too late to start"? Well, try this on for size: when it comes to investing, it's never too early to start. Time... Read More

Easily Finding A Good Stock

There is a tremendous amount of software, complicated high priced newsletters, radio and TV stock pickers and Internet web sites that will help you find a stock... Read More

Your Portfolio and ?Old Ironsides?

The USS Constitution first ventured into the waters in 1798. From there she became an icon of durability and success.In battle, the ship became known as "Old... Read More

Why You Need To Buy and Sell Gold Coins (Part 2)

How to Collect Rare Coins For Fun and ProfitTime has proven that collectors tend to make the most money in rare coins because they search out "undervalued... Read More

Investing & Online Stock & Share Trading- The Stock & Share Markets are Booming But Be Warned

I had the pleasure of being invited on a friend's yacht to sail in a race on Sydney Harbour yesterday. On board, as one of our motley... Read More

Investing in New Zealand - Learn how to Find Unique Investment Opportunities

Investing in New Zealand might be much easier than investing in other western countries, thank to the excellent infrastructure, the low taxes and the assistance of the... Read More

How to Terror-Proof Your Money

"To drift is to be in hell, to be in heaven is to steer." -George Bernard ShawFormer Homeland Security Director, Tom Ridge, has said it's not a... Read More