We Don’t Know As Much As We Think We Do and The Importance of Risk Management

We don’t know as much as we think we do.

Winning traders understand that there are too many variable that can impact a trade to make a 100% accurate prediction.

As Confucius famously said, “real knowledge is to know the extend of one’s ignorance.”

Even today, with all the software, years of charts and  years of market study, we don’t ever know what will happen once we enter a stock.

We are making educated guesses based on past history. This gives us our probabilities for success. But we can’t take into account every variable that can impact the future. And even if we could, we still only have a probability. There is never an infallible outcome.

This is why we manage risk. Because at the end of the day, we don’t know what will happen.

It’s why “defense comes first”.

When we plan a trade, we always start with risk before I ever thinking about the reward.

We need to protect our bankroll. It is the lifeblood of all traders. Without it, we can’t make money. With it, we can make plenty of mistakes and still win big.

If we manage our risk.

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This is post #3 of writing everyday until the end of the year. It may be a little or a lot. Some of it good and some of it bad, but I will write something every single day.

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