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Yet, when most people start trading, only thing they think about is profit objective. Countless hours are spent on discovering how to buy and sell market with unwavering accuracy. Once they buy a market, amateur trader only thinks about how high is market going to go. Little effort is put into considering how low market could go, and where they should get out in order to control their losses.
These thoughts, which are so distant from minds of most traders, are what separate winners from losers.
Risk management is practice of determining what percentage of your account to risk for each and every trade in order to maximize expected profit potential of your trading strategy.
Once this amount is determined, this percentage must be translated into an absolute value and stop loss orders must be placed once a trade is entered in order to control potential losses at this value.
There is no guarantee that such efforts will control your losses, since market can gap in price beyond your stop loss order, resulting in losses greater than planned.
Copyright © 2005 Ioannis - Evangelos (Akis) C. Haramis firstname.lastname@example.org http://www.greekshares.com Ioannis - Evangelos (Akis) C. Haramis was born in Athens, Greece in 1951. He studied in Greece, in USA and in Belgium and has been active in the stock markets since 1972. Since 2002 he is New Business Development Managing Director at an Investment Bank and the editor of http://www.greekshares.com