Wednesday, February 4, 2009

Risk Trading

A trader friend came to our room yesterday afternoon and announced that he had lost about US40,000.00 for the day. I would consider him a big trader, scalping up to 100 lots of open Nikkei position when he is down on his luck. This is one of the major mistake most traders make, trading bigger position to recover the initial losses and end up burning a big hole in their pocket.

Should I consider him a good trader? He has been consistently making few thousand US a day and once in a blue moon he will get caught in some lousy position and start averaging on the bad trades. There were of course bigger losses in the past but at least he cut his losses at the end of the day no matter how painful.

What I admire most is his guts to trade such huge size, utilizing the maximum margin available in his account. The risk he took is not what a trader should take. Despite the huge losses, this trader has the ability to bounce back numerous time with his confidence still intact.

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