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TFC Commodity Trading Forum

Risk: Our Achilles Heel

If you have even one weak spot in your trading plan, it will keep you from consistent success. Most have several weak spots to overcome before they find consistency. The most common is misunderstanding and accepting risk. Just before a playoff game this past season, the Chicago Bears quarterback, and one tough competitor Jay Cutler commented, ďÖthere is a lot more to playing quarterback in the NFL than taking 3 steps back and throwing touch-down passesÖĒ That was his way of saying. ďHey guys. I know the risks better than most of us in this roomĒ. Above all an NFL quarterback is a risk taker.

It is only because of risk that someone can go from having little to having everything. But they have to risk what little they have first. And they have to know how to defend it second. And they better know this ahead of time, otherwise they arenít going to be able to hold the line when the risk is peaking, and wonít be around when good fortune rolls their way.

My biggest mistakes in trading was not risking enough on a trade, and exiting a position early instead of defending it. Please keep in mind we are all unique. I believed my strength was in understanding direction and the edge in market selection this gave me; therefore I could afford to layer into positions, set looser stops, and defend positions by adding against structure. If you are new to speculating, or unsure of your market selection, the things I just mentioned: layering contracts and loose stops can be very dangerous.

Success starts with a game plan with realistic expectations where the objective is to win. I know while Iím layering orders in on the retracement of the last impulse price move, that if Iím right, once the correction runs its course, price is going to rebound, and resume its dominant direction and Iím going to be rewarded nicely. I also know that should the counter-trend retracement Iím buying into turn into a trending move itself, then Iím going to be stopped out with a predetermined loss.

Every quarterback knows they arenít going to get a first down every time theyíre on the field. But unlike quarterbacks, traders donít run the risk of getting run down and smashed to the ground by a 325 lb defensive lineman every play either. In fact once a trader does whether the risk, and the market starts to move in their direction, the best course is to do nothing and let the market do the work for them. But it all starts with accepting the risk.

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Risk: Our Achilles Heel