Good trading isn’t about always picking the right stocks, or the right prices. It’s as much about managing your risk, and integrating a strong risk management philosophy into your trading strategy. Here are five ways to reduce your trading risk and grow your profits.
- Avoid the Herd Mentality
Winning traders avoid common thinking. Common thinking begets common results. Common results in the markets mean that you will likely lose money. Here are a few examples of common thinking: “Let’s put in a stop loss one tick below yesterday’s low” and “Looks like the market wants to go higher, so I think a long position might be a good idea.” But what does “looks like” mean, and how does the market know what it wants to do?
Proper risk management comes from sound technical strategy which requires top notch technical tools. VantagePoint Software can help you control your risk by giving you the next day’s predicted high and low as a guideline to set your stops. Instead of getting stopped out with the crowd, you have a predictive indicator that gives you a higher probability of staying in profitable trades longer.
- Be Wary
Avoid trades that scare you. If a trade frightens you, there is a message. That message: You should not take the trade. You may think that trading a certain market offers huge profit potential, but it scares you because of the possible loss due to market volatility. If it scares you, then it is not right for you. If all trading scares you, then trade down to an “unscary level.”
- Split your Position
Rather than engaging in the common behavior of taking profits at a target for the entire position, allow part of the position to ride a profit. There are several effective and objective ways to do this. One way is to use a trading software like VantagePoint with indicators like the Predictive Neural Index. Traders can use this leading indicator as the primary “signal” for an impending change in the trend of a market since it predicts whether a market will move higher or lower in the coming two days. It compares two three-day simple moving averages to one another – today’s actual three-day simple moving average with a predicted three-day simple moving average. Since it’s a binary index, when the reading shifts, this is a good indication to reduce your risk and take off part of your position.
- Be discerning
Be careful what you believe. A plethora of useless, subjective, deceptive and misleading information is out there. And it is getting worse all the time. Take due diligence in checking the accuracy and efficacy of the tools or you may end up practicing improper risk management disciplines or worse.
VantagePoint software’s 80% plus accuracy comes from numerous independent tests including multiple PhDs since 1991. By having confidence in a software’s proven accuracy, you can stick to your risk management plan and not stray the course
- Use Leading Technical Indicators
Technical Analysis is simply a reaction to past price action, and by using traditional lagging indicators such as Moving Averages, there’s the risk of “arriving to the party too late.” Using a predictive trading software like VantagePoint that uses leading technical indicators helps you get into trends earlier, and therefore you can improve your risk to reward ratio.