Risk, in trading, is your state of mind, your trade plan from a set of indicators of where the price will be in x amount of time, and your money management. I contend that the first is by far the most important to make a trade with; in fact, its record, use and adjusting around the trade is far more important than the other two items. I'll try and explain my position below, to justify regular use of the tabular psych method my last post showed.
Risk is in which actions you take. You're in a dangerous environment, one with the possibility of investing your money and losing it. You're in full control of where your money goes, so it's of less relevance how much money you invest. The real risk is You. Specifically, it's you, entrusted with money in this environment, that puts the money at absolute risk. So, you have to prove yourself.
More specifically, you perform a series of actions to define why you may or may not invest your money in a certain direction for a particular number of pips. That is, you make a trade plan. This trade plan, once done and used, carries a certain risk, a risk that can be set knowing the indicators' usual effectiveness, investing only a certain amount of your money, and recording your state of mind in making the trade plan.
The first two are child's play to decide, even if a lot of time can be spent getting the indicators, or a particular use of some indicators, that bring the least risk, or rather most reward, to their use in a trade plan.
The third is the doozy, one lots of people neglect to make clear enough to make decisions upon each trade. There are various ways to make sure your state of mind is in order at the time of the trade plan you follow through with.
For each way, it seems best to check it right before and during the trade, and then go over it after the trade; to do this effectively, establishing one's state of mind
enough to determine whether extra variables from one's state of mind show if the trade plan can be effective
or, if indicators are used differently and how, can be made effective,
or enough to be able to correct one's state of mind enough to realize one must adjust one's trade plan to make it work.
To accomplish these, the way one establishes one's state of mind for the trade must be clear, easy and systematic: Systematic enough to reach conclusions over an infinite number of trades, easy enough that you will do it every trade, and clear enough that you can change the most basic errors in deciding direction while making the trading plan.
That's why I made a tabular psych method: So I can effectively record, adjust and use my state of mind for every trade, while doing the same for chart/news indicators and money management, all during a trade that lasts a few minutes and before and after other such trades.
Risk is in which actions you take. You're in a dangerous environment, one with the possibility of investing your money and losing it. You're in full control of where your money goes, so it's of less relevance how much money you invest. The real risk is You. Specifically, it's you, entrusted with money in this environment, that puts the money at absolute risk. So, you have to prove yourself.
More specifically, you perform a series of actions to define why you may or may not invest your money in a certain direction for a particular number of pips. That is, you make a trade plan. This trade plan, once done and used, carries a certain risk, a risk that can be set knowing the indicators' usual effectiveness, investing only a certain amount of your money, and recording your state of mind in making the trade plan.
The first two are child's play to decide, even if a lot of time can be spent getting the indicators, or a particular use of some indicators, that bring the least risk, or rather most reward, to their use in a trade plan.
The third is the doozy, one lots of people neglect to make clear enough to make decisions upon each trade. There are various ways to make sure your state of mind is in order at the time of the trade plan you follow through with.
For each way, it seems best to check it right before and during the trade, and then go over it after the trade; to do this effectively, establishing one's state of mind
enough to determine whether extra variables from one's state of mind show if the trade plan can be effective
or, if indicators are used differently and how, can be made effective,
or enough to be able to correct one's state of mind enough to realize one must adjust one's trade plan to make it work.
To accomplish these, the way one establishes one's state of mind for the trade must be clear, easy and systematic: Systematic enough to reach conclusions over an infinite number of trades, easy enough that you will do it every trade, and clear enough that you can change the most basic errors in deciding direction while making the trading plan.
That's why I made a tabular psych method: So I can effectively record, adjust and use my state of mind for every trade, while doing the same for chart/news indicators and money management, all during a trade that lasts a few minutes and before and after other such trades.