The Truth About Day Trading Stocks: A Cautionary Tale About Hard Challenges and What It Takes To Succeed

CHAPTER 6

The Importance of Risk Management

The higher your skill level, the better you are at protecting your capital from taking huge hits. Along with that key capability, you typically trade in the green. So the big question is, the only question is, how in the world do you get there?

In day trading, it usually boils down to how well you manage your risk. This amounts to some educated guesswork. You figure—you try to very nimbly figure—just exactly when you should use your funds, and how much to risk at a time.

The subject of minimizing risk is so hot that it could fill several books on its own. It could dominate the five-day live training programs—and I’ve been shocked to find out that it doesn’t. Though all of the programs and seminars I’ve attended have somewhat conveyed the hazards, I feel that they’ve failed to teach amateurs precisely how to avoid them.

To be frank, I’m disgusted by the inadequacies I’ve witnessed. At those vital hubs of instruction, risk often isn’t even mentioned until the very last hour of the very last day.

I’ve been bored by advisements on the obvious, like: “You should never trade money you need.”

Duh!

Here’s one so brief and deficient that it really gets under my skin: “Know your limitations and stick to them.”

That’s like telling a toddler to stay in, and not bothering to explain to him why, and then leaving the front door wide open while you nap and he’s wide awake.

Likewise, instructors warn of day-trading dangers, but they neglect to present ...