Trading Psychology · Lesson 4 · Beginner
Accepting Risk
You name the maximum loss before every trade and fully accept it emotionally before you place the order.
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Accepting Instead of Just Taking
The most important learnable trading skill is accepting risk, not chart technique. Taking risk means entering the trade. Accepting risk means embracing the consequences without emotional discomfort.
Taking risk is not accepting risk
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Decide in every scenario.
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The key points at a glance
- Taking risk is not the same as accepting risk.
- Setting a stop does not yet mean you have accepted the risk.
- Size the position so that the loss is fully acceptable in advance.
Deep dive
Bob: 30 years of experience and still bluffed
Bob managed 50 million dollars with 30 years of experience. He dutifully set a stop but did not believe it would trigger, exited early out of spite and missed 500 points in his direction.
Simply setting a stop does not mean you have accepted the risk. If you still have to actively remind yourself of it, you have not internalised the acceptance. Your actions reveal your true beliefs, not your intentions.
Position size is the tool, not willpower
You force acceptance through size, not through gritting your teeth. If every adverse move makes you queasy, that is a sizing problem, not a courage problem.
- Bruce Kovner: position size follows from the stop, never the other way round.
- Larry Hite never risks more than 1 percent and is therefore indifferent to every trade.
- Before the order, name and check your maximum loss in USDT and percent.
In a 24/7 market you become a passive loser
Trading has no end of game, the market does not take you out. Without a stop as a hard order you keep losing without doing anything. In a losing trade you tune out the adverse move, only after exiting does the trend become visible.
That is why the stop and your rules must be set in advance, while your head is neutral, and the stop must be a real order.
Sources: Douglas, Schwager
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