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Only trade money you can afford to lose

by Bruno Deshayes on 19 Mar 2016 permalink
Share trading forex or commodities trading is mainly a game of bluff. You can only take a trade if you find someone else willing to buy when you want to sell or sell when you want to buy.

It stands to reason that you can't be both right. One will end up with a profit and the other with a loss.

At the end of the day you save face by trading anonymously. You probably would never trade again if you saw the professional rubbing his hands after making an easy win at your expense.

The market loves to backtrack over the values reached in the preceding days and it's a game of who blinks first. You can be prudent and go home with a small loss or you can be bold and hold on for sheer perseverance only to be punished with a much bigger loss.

That's where all the psychology comes in. The market rewards you for taking a risk but your risk taking ability depends on your present situation. Are you under stress to make ends meet? That's' the worst situation to trade with a clear head. Are you going through separation or divorce? Please do not trade now. Have you just lost your job? Smell the roses but do not turn yourself into an overnight portfolio manager...

The more desperate you are to pull money out of the market the more likely you are of being fleeced. There is a fine line between trading and gambling. You are crossing that line when

* You place more than 2% of your capital on a single trade. (Instruments that move in unison count as one trade here).

* You have done no specific research and trade on a hunch.

* You do not use technical analysis to indicate objectively when the market changes from rising to falling.

* You do not set a stop loss and a limit target before placing the trade.

* You hide your trading from your spouse.

* You dash off at work to the bathroom to check your stocks on your iPhone.

* You pray to the god of the markets that this stupid stock should turnaround now.

* You double your position to get even with that wild beast and recover your losses before it reaches back your entry point.

* You have visions at night of yourself placing a bomb in the basement of the exchange.

* You take up smoking and upgrade to a supersize meal at the fast food outlet.


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