There is an inherent market risk when trading. An obvious statement, we know. But why, then, do so many play the market as if risk does not exist? Why do so many traders lose more than they win and, eventually, lose it all?
The answer is just as obvious. Perhaps it is because many believe market risk can be overcome, when, in reality, it can only be reduced, mitigated, or otherwise tempered.
The market IS risk to varying degrees, nothing more, nothing less. It is people (and people programming computers) making bets. There is only one certainty. The market will go up or the market will go down. You can reduce the probability to an even bet. There is no overcoming market risk – it will either go up or down. Flip a coin.
Every trade has an element of risk, but you can lessen it while increasing your chances of picking which way it will go. If you understand this, you are ahead in the game.
There are those who think that there is no need to lessen your market risk. They believe they “know” which way a given market will go, or they believe someone else “knows” which way it will go and they can listen to that person. We say that blind faith is a coin toss. At best, you will win more than you lose. At worst, you will lose all you have playing with that strategy long enough. It is not even luck – it is the law of probability. It is guessing and putting you at the mercy of inherent market risk.
Try to mitigate your market risk instead. If you do, you can bend the law of probability in your favor. There are three easy steps you can take to start limiting your market risk:
3 Steps to reduce Market Risk
- Learn the market you want to trade. Identify past patterns that will repeat over time. Study them and you will be better served to see repeatable patterns you can act upon.
If you study the market from May 2009 through the summer of 2016 you will see identifiable patterns attached to repeated events. For example, in 2009 there was a repeated event – the potential collapse of the euro. A market pattern developed as that event was repeated ad nauseam in the news. We have a current event that mirrors this in the Fed’s “will they or won’t they” discussion on raising interest rates. Study the movements around this event and you will begin to see a pattern.
- Understand the psychology of the market and The Market ‘R Us people making emotional decisions.
The psychology of the market is correlated to the above, but it is less specific and harder to pinpoint. Nevertheless, if you track global events, stay tuned into the global consumer. Understand economic fundamentals and you will soon learn to better “predict” emotional market responses from the greater population of traders. This will allow you to be in a better position to make moves for your own portfolio.
- Supply yourself with software that helps you reduce market risk and help you win more often and defy the law of probability.
Understanding that market analysis software is here and ready for you to use it as a solid way to mitigate market risk. The best way to capture these benefits is to find software that works, software that has a track record of helping users determine short-term market movement. VantagePoint uses artificial intelligence to predict market movement 1-3 days in advance with up to 86% accuracy. We eliminate the coin flip approach and help you focus on markets that are more likely to produce winners and reducing market risk and volatility.
If you learn nothing else regarding your trading in 2017, understand that market risk is always present. However, with the right education, market understanding, and analytical tool, you can manipulate it to be more in your favor.
Reduce your market risk with VantagePoint
Make sure you have all the best tools available to you that will reduce your market risk. Sign up today to receive a free demonstration of VantagePoint and see how our predictive technology can help you gain an advantage over the markets and make 2017 your most profitable year yet!