How NOT to Take Big Risks and Risk Big Losses
A big part of being a self-sufficient trader is learning how to not take big risks.
You have to learn to recognize big risks and you have to know when to cut losses. Rule #1 is to cut losses quickly. But with some of these plays, you can’t always do that.
My goal is to help you stay safe. Right now, I see way too many students engaging in risky trading strategies.
This is where it gets interesting from a teaching standpoint. There are strategies you can use to try to make money. But they often come with the risk of decimating your account. And that can happen with just one trade…
I just don’t think it’s worth it. And it’s my job to teach you everything I’ve learned in my 20+ years of trading. I want to help you learn to trade safer and smarter.
So let’s get into how to limit your risks when trading…
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Know the Risks of Short Selling
I’ve said this a million times: I don’t recommend short selling for new traders.
First of all, shorting opens you up to the risk of losing your entire account. Say you’re shorting a stock and it goes against you. And you don’t — or can’t — cut losses … You could lose the money you put into the trade AND your entire account.
Even worse, you can end up owing your broker by the time you get out.
Shorting low-float stocks on a Friday morning in a hot sector is especially risky. Low floats can spike super fast, so it can be hard to cut losses quickly.
None of my students should get into this kind of risky trade. It goes against everything I teach.
But there are still too many students taking these risky positions. Maybe they get lucky and have a few wins. And that leads them to mistakenly believe they’re on the right track. But in reality, they’re risking their entire account and more.
That’s why I say short sellers are the new promoters. They’re not telling people the whole story. They don’t lay out all the risks.
Short sellers can have decent wins over time. Some may have 5%–10% gains and win 60%–80% of the time. That’s not that far off from my record (check out every trade I make on Profit.ly).
But it just takes one wrong trade to blow up. You risk losing everything and more. That’s the problem with shorting. And too many people don’t understand that. With one trade, you can wipe out months, or years, of gains.
When you’re a new trader, you should focus on the process and following the rules. Take only the best setups. Develop good trading habits.
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