Risk Management The Holy Grail of Trading

By Kenneth Mann

Risk Management may have various names, money management, risk management, trade management, order management and so on. Whatever you call it, one fact is indisputable. Risk management is the essence of trading. It is the most important aspect of trading. It's almost the holy grail.

It's ironic, that for new traders, risk management is the least important aspect of trading. Everybody wants to learn about how to find best entries and such first. They think that's where the money is found. It's human nature; we usually tend to look for the easy way regardless of whether it's the correct way

I'm a big fan of old martial arts movies. Not the ones where the actors effortlessly jump from tops of 3 story buildings, I refer to those with young people who go to a martial arts master to teach them his craft. Once the master accepts them as his student/trainee, he sets before them mundane tasks such as cleaning the floor, moving certain items from one place to another etc day in day out. Eventually most students get really frustrated with extreme disappointment. After all, they wanted to be the best kung-fu fighters, not handy men or cleaners. Most drop out. The ones that stay the course, however, start to realize that martial arts is a life style practice, not a fighting one. They also come to an understanding of mastering the art takes time and hard work. Trading is similar. There is a long road to travel to become successful and most who begin do not finish. Why you ask?

Well, recall that most are lured to the profession from easy money stories, especially after hearing and reading all those stories how so-and-so made lots of money by trading currencies. A wild west gold rush begins as they look into trading a bit further. They download some trading platforms and start trading paper money. Watching price moving.. seeing all those dollar pips rolling fast on most likely M1 and M5 charts. Traders become excited by now as they think of the prospect of making a lot of money without any hard work. Already they start to imagine/dream about rich life style. At this stage reasoning logic should be telling them "hang on, this looks too good to be true", but who cares about sensible reasoning here. It's all blocked by greed. That devil in man starts controlling and they forget that a trader has a very speculative profession.

So please do not be one of the traders described above. Decide that you will understand risk management before you proceed. Now please know that depth of a discussion required to adequately address a deep abiding understanding of this topic requires a book not an article. The intent of this article is only to alert you to the importance of risk management to your future success.

Today you have found the holy grail of trading. You know first thing to learn as a new trader is risk management. Prudence demands acknowledgement of its importance.

Ken Mann co-founder of http://AceGazette.com is a professional Forex supply and demand trader who has written numerous books and articles about many of the aspects of a traders life. As the senior author of the Ace gazette Writers Guild he creates in depth analysis as well as books that are invaluable to the trader community. You can follow his work at his site or virtually any of the major social media platforms.