It is time for another guide in trading 
So for all of you who are new or unfamiliar with trading world, the key of trading is actually the management of risks. In the trading world, you will be faced with many type of risks, which you have to manage.
Many folks always think trading only related to counting and numbers, however, there is one important risk that all of us must manage to achieve optimal result in trading. That risk is the psychological risk embedded in trading. In this post we will reveal four type of psychological risk in trading, and at the end of the post you can download and read the full explanation about psychological risk in trading
So let’s just start it, shall we? Here are the list of possible psychological risk you might find in stock trading (or many other kinds of trading):
- The risk of boredom – Many traders are attracted to trading because of the possibility of large P/L moves in a relatively short period of time. Our sound trading method offers little such excitement. Indeed, there are long periods of relatively flat performance. If the trader is trading for needs other than profitability (excitement, quick riches), he or she is apt to abandon the method after months of treading water.
- The risk of drawdown – Many traders equate a trading edge with a smooth equity curve. Not so! As we mentioned in the earlier article, even a method with a 60/40 win/loss ratio will experience a series of four losing trades 2-3 times on average per 100 trades. In the case of our random order of wins and losses, we wound up with months of drawdown, albeit modest. The trader who equates drawdown with failure will abandon even a good method.
- The risk of drawup – We made up that term, in case you wondered, but you get the point. If drawdown is the amount your portfolio loses value in a period of time, drawup is the amount your portfolio rises. In a relatively short period, we had a series of winners early in the year, putting the portfolio up 20%. A method with 60% winners has about a 13% chance of giving you streaks of four consecutive wins. Why is this a risk? After a big drawup, many traders become overconfident and change their position sizing and trading frequency, negating their edge. Their expectations raised, they find it harder to get through the inevitable periods of flat performance.
- The risk of sequencing – Quite simply, even with a demonstrated edge and prudent loss limits, we cannot know in advance the sequencing of our winners and losers. The account is up handsomely for the year, but spent just as much time treading water as rising. Much of the method’s gains were obtained in a relatively short period of time–but we can’t know what that precise time is going to be. That means we have to endure down sequences and flat ones in order to get to the winning periods.
As promised, you can download the free managing psychological risk in trading e-book here
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