“Frankly, I don’t see markets; I see risks, rewards, and money.” Larry Hite
==== I love these simple but powerful quotes. This one especially, pretty much defines a great approach to the markets. This is not a game, this is a serious game, where professionals are there to take your money. Focusing on your risk can give you an important edge because it helps you take control of your loses.
It is universally taught among real traders (not people who write books about trading and have never opened a position or have mantained a live account for more than a year) that you must never ever let you losses run out of control.
Especially under the current market conditions, which look more like a politically driven market (remember Supply & Demand market has died long long time ago) , its important for anyone to limit your exposure.
Reward is much more difficult to figure out because you just don’t know where the market will turn around or how many pips or points it will give you. Reward should be seen as a probability. Example, if the market has been strongly rallying to the upside for weeks and weeks, if you place a buy at these levels even with a correct risk profile, the rewards are in the probability of “low”. So under this example it would be better to wait for a sell formation to appear. The same would be true for oversold market conditions.
What do you think? how do you manage Risk,reward? any experiences or suggestions you would like to share?