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

Copyright � 2005 I.E.C. Haramis

haramis@greekshares.com

Merck Investors Can Sleep Easier (Not Easy) DailyFinance By Brian Orelli, The Motley Fool Posted 3:34PM 02/06/12 Investing Merck (NYS: MRK) said today that its insomnia drug suvorexant had passed two phase 3 trials, putting it on track for an FDA filing this year. But that doesn't mean investors can sleep ... and more »

Investments for Income Lovers Motley Fool With interest rates at historical lows, folks are having a hard time squeezing any meaningful income out of their investments. While you don't want to go out too far on a limb in search of higher yields, there are some steps you can take to boost your ... and more »

Your Most Important Investing Decision of the Next 10 Years TheStreet.com And these are some of the most boring companies you can think of -- real-state investment trusts (REITs), pipeline operators and cigarette makers. But they all have one thing in common. As the chief investment strategist behind High-Yield Investing, ... and more »

Ask the Experts: What looks attractive for investors? Kansas City Star By CLAUDIA BUCK With the economy starting to perk up, investors are wondering where they should be looking next. Here with some recommendations is Glenn Kenes, managing director of investments with Barber-Kenes Capital Management Group in Auburn, ... and more »

J.D. Power and Associates Recognizes Merrill Edge(R) Call Centers for Customer ... MarketWatch (press release) For customers who prefer to invest on their own, Merrill Edge provides an online self-directed investing platform, with robust tools and resources to help them make informed investment decisions. "This designation acknowledges the strong commitment ... and more »

Investing mistakes even the pros make Sydney Morning Herald The best investors learn from their mistakes over time. And because I've made plenty of mistakes during my career, I'll optimistically say that means I've had lots of room for personal growth. Lucky you, then, for being able to learn from some of the ... and more »

TD Ameritrade Investor Poll: Younger Investors More Likely to Invest "More" in ... MarketWatch (press release) OMAHA, Neb., Feb 06, 2012 (BUSINESS WIRE) -- The European debt crisis, US unemployment, the housing market, and political uncertainty - a laundry list of issues that may be causing investors to think more cautiously about their financial futures. and more »

3 Dow Stocks That Jumped in a Down Market DailyFinance By Dan Caplinger, The Motley Fool Posted 7:06PM 02/06/12 Investing The stock market may have been down today, but things could have been worse. After falling nearly 70 points in early trading, the Dow Jones Industrials (INDEX: ^DJI) recovered to finish ... Investing In The Dogs Of The DowSeeking Alpha all 12 news articles »

Stockopedia

Are your investments at risk? 3 useful Red Flags: Altman, Beneish and Piotroski Stockopedia Warren Buffett's rule #1 of investing is “Don't Lose Money" while rule #2 is “Don't forget rule #1.” As with most Buffet aphorisms, though, the devil is in the detail of implementation. Clearly, though, one important way to prevent yourself losing ... and more »

Freedom Investing 2012 Forbes I've been discussing foreign freedom investing for a decade now. In the spring of 2010, I used the term “Ring-of-Fire” to describe countries with a high debt and deficit and suggested avoiding them. A year later, I revisited that advice and counseled ... and more »