Gambling Trader Or Trading With Risk Management?
Oct 10, 2023
In the thrilling world of trading, two distinct personas often emerge: The Gambler and The Risk Manager. These two characters couldn't be more different in their approach to financial markets. While The Gambler chases the next big win with wild abandon, The Risk Manager takes a methodical and calculated path to success. In this blog post, we'll explore the stark differences between these two trading personas and why, in the end, it's the Risk Manager who usually comes out on top.
The Gambler: YOLO and What If?
The Gambler is all about the excitement of trading. They embrace the "You Only Live Once" (YOLO) mentality, constantly looking for the next big play that could turn their fortunes overnight. They're often blinded by the allure of big profits and only see the positive side of the equation – the "What If." While optimism is essential in trading, The Gambler tends to disregard risk and throw caution to the wind.
The Risk Manager: Calculated and Neutral
On the other side of the spectrum, The Risk Manager is the voice of reason in the world of trading. They focus on identifying and mitigating risk before even thinking about potential rewards. This persona is in control of their emotional state and can execute trades without getting emotionally attached to the outcome. They understand that emotional decisions can lead to disaster.
Documenting and Learning
One key trait of The Risk Manager is their meticulous documentation of every trading action. This practice allows them to review their decisions later, helping them learn from both successes and mistakes. This habit fundamentally changes the way they perceive the market, as they approach it with a more analytical and less emotional mindset.
Preservation of Capital
The primary goal of The Risk Manager is not just to make money but to preserve their capital. They trade to live another day, recognizing that bending the rules and making discretionary decisions, as The Gambler often does, can quickly lead to disaster.
Intuition and Risk Reduction
While The Gambler relies on luck and gut feelings, The Risk Manager's intuition is honed through years of experience. They use their intuition to reduce risk, especially in critical entry orders. This approach saves money by avoiding impulsive trades and waiting for optimal setups.
Sizing Up: A Gradual Approach
When it comes to increasing position size, The Risk Manager takes a methodical approach. They base their decisions on their risk tolerance and conduct thorough due diligence. Sizing up is not a hasty move for them but a gradual process built on a strong foundation of research and strategy testing.
"Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in." - Paul Tudor Jones
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