The Number One Job Of Profitable Traders

Most games are played in a controlled environment.

The rules, opportunities and threats are fixed, and known to all players.

In a poker game for example, we know in advance that there are 52 cards in the deck, divided into 4 suits with 13 cards per suit. We also know the number of opponents we’re playing against, and who they are.

So whenever a card is revealed on the table, we can calculate the probability of the next card to be revealed, and the odds of having a winning (or losing) hand.

But the game of trading doesn’t work like that. It’s played in a variable (i.e. non-fixed) environment.

You’re never sure of who you’re playing against, or the types of ways the market can move up, down or sideways.

Practically speaking, the possibilities are infinite.

So one of the reasons why trading success eludes people is because they approach it in the same manner as they would any other game.

They don’t realise that the game of trading works differently.

The Purpose Of Trading

The most practical purpose of trading is – no prizes for guessing – to make money.

But what many traders fail to realise, is that they can only make money if they can stay in the game.

If you get taken out of the game, you can’t make money.

On the surface, this may seem too obvious to mention.

But you see… to most retail traders, “staying alive” is a mere side note, not an actual goal.

And I’d like you to consider “staying alive” to be the most important goal for traders. Not making money.

Let me explain.

What We Can Control vs. What We Can’t Control

The various aspects of trading can be split into two categories: things we know (and can control), and things we don’t know (and can’t control).

For example, we don’t know in advance where the market will move. We can’t control market prices, and there’s no way to know for sure where the market is headed.

We also don’t know who we’re effectively trading against, or when they’ll take action.

Compare this with poker, where the cards in a deck, number of opponents and their seating arrangements are fixed and known in advance. Most other games operate in a similar manner.

The only thing we know for sure as traders, is how much we’re risking on each trade we take. We can choose the amount of capital we lose when we’re wrong.

In other words, we can control how long we stay in the trading game.

This, above all else, is the number one job of profitable traders.

Why Amateur Traders Hate Risk Control

It may seem strange, but a profitable trader’s first line of business is not to make money.

This usually falls on deaf ears because new traders come to the market just wanting to make money, and overlook the more important goal of staying in the game.

After all, risk control is a boring topic… and nobody wants to entertain the idea of choosing how much to lose.

Thinking about how much to win is so much more fun and exciting.

But the problem with this is that there is no way to know (or control) how much we can win. That’s up to the market, not us.

We can only know (and control) how much we’d lose if we’re wrong.

In preparing and protecting against excessive losses, we can survive long enough to enjoy the coming profits.

The longer we stay in the game, the higher our chances of our trading edge working for us.

By |2018-10-22T03:11:18+00:00October 22nd, 2018|Mindset|21 Comments

21 Comments

  1. Laur July 24, 2013 at 7:01 am - Reply

    Very nice 🙂

  2. Stephen July 24, 2013 at 7:03 am - Reply

    Good solid info Chris. Really enjoyed the post. Thanks for all the good tips.

  3. Jorge Tadeo Salcedo Luna July 24, 2013 at 8:46 am - Reply

    Me parecen muy valiosos tus conceptos. Hay que seguir contigo hasta que tu quieras ayudarnos.
    Gracias.

  4. rodger July 24, 2013 at 9:13 am - Reply

    Hi Chris,
    Thanks for your Comments, as i agree totaly

  5. Donald Gavin July 24, 2013 at 11:00 am - Reply

    Very true! It took me quite a while to realize the importance of controlling my risk. Once I did I had to ‘un-learn’ all my bad habits and make myself adhere to my own trade rules. Great post. Thanks.

    • Chris Lee July 24, 2013 at 11:07 am - Reply

      Hi Donald,

      Glad this post made a difference!

      You’ve also brought up a good point: ‘un-learning’ is an important part of training to be a trader. Excellent insight!

  6. Guyvard July 24, 2013 at 12:43 pm - Reply

    Very insightful. Thank you a lot!

  7. J July 24, 2013 at 1:27 pm - Reply

    Well said. Keep them coming. Sometimes, we think we know stuff until someone brings it to our attention.

  8. Eniola July 24, 2013 at 1:49 pm - Reply

    the real stuff most of us are grappling with.

    thanks for the post

  9. phil preston July 24, 2013 at 9:03 pm - Reply

    Hi Chris
    Great advice. Risk is the most important aspect of Financial trading. That’s why if a trader combines the risk/reward in a favourable manner every single time they are about to place the next trade – we can to a certain extent eventually end up owning THE HOUSE as they say!!!

  10. Terry July 25, 2013 at 2:44 am - Reply

    Great post, Chris. This way of trading is the One that continue to keep me in the “trading game” with you for five years! Thak you.

  11. Player July 27, 2013 at 12:12 am - Reply

    Thanks for your post.Definitely,risk control is the most important aspect of trading. In forex,you only need to monitor price action of ,namely, four pairs cause they spell out price action of the rest of the market.Hence, one needs to avoid loading heavily in highly correlated pairs and play small.That is the only way to tilt odds to one’s favor.

  12. Arthur Seme July 28, 2013 at 6:19 am - Reply

    Hi Chris,
    As a student of Icarus, everything is about being aware and systematically controlling what you can and let the profits come to you. Proper risk management ensures survival.
    Thanks and keep the great posts coming.

    • Chris Lee July 28, 2013 at 7:36 am - Reply

      Hi everyone,

      Thank you for your kind words and continued support!

      Feel free to let me know if you want me to write in particular about any trading topic — If I have a view about it, I’d be happy to share it with you.

  13. santo July 29, 2013 at 12:06 am - Reply

    hi Christ,
    thanks 4 sharing it. please write about how to handle our emotion while on the trade. thanks mate! 😀

    • Chris Lee July 29, 2013 at 4:08 am - Reply

      Hi Santo,

      Thanks for the idea… I’ll keep that in mind in the coming posts!

  14. Jim Stewart August 4, 2013 at 5:45 am - Reply

    Great post good advice, wondering what platform or site you use thanks I will keep reading. still too new to jump in yet I see the day coming.

    • Chris Lee August 4, 2013 at 10:55 am - Reply

      Hi Jim,

      I trade using the MT4 platform with a number of brokers including IBFX and Oanda.

  15. Fan August 5, 2013 at 6:17 am - Reply

    Nice blog, I just got to your site.

    Oanda does not allow hedging, so gave them a “No” at the exhibition at suntec this past wkend.

    Will email you Chris.

    Take care,
    Fan

    • Chris Lee August 6, 2013 at 5:11 am - Reply

      Hi Fan,

      Yes, in some countries (like the U.S.) brokers are not allowed to provide hedging capabilities to traders.

      This is another one of the restrictions that I’ve talked about in the Retail Forex Manifesto. More restrictions are certainly coming, so the longer people wait to learn how to trade, the less freedom they have to be able to succeed.

  16. Ralph October 2, 2013 at 3:41 pm - Reply

    Hello Chris
    Hope things are going well for you, and thank you for the help.

Leave A Comment