Eliminating risk is not the purpose of trading. Part 1

Earlier this week, as Timmy Giethner was speaking he made it a point to bash banks.  He said something along the lines of we need to remove risk from the banking system.  I am still perplexed why he said that but I think it is a general misconception of people that risk is always bad.

Risk = Opportunity

The reason you take a risk is because the opportunity that it provides.  But not all risks are created equal. There are good risks and bad risks. There are risks that you want to take and risks that you are forced to take.  There is risk of not taking risk. The way you feel about risk is partially determined by when you think about it.  Without risk we would have no opportunity.

Eliminating Risk

As a trader, the only way to take a “risk free” trade is if the counter party just wants out at any cost.  This of course happens and careers are made in those times but they aren’t built that way.  Those traders that are attempting to eliminate risk are trying to find a short cut, the holy grail.  Short cuts and holy grails do exist but they only exist for short periods of time.

Reaction to realizing risk

There are some traders that take a tick loss as a 10 handles loss and a 10 handle loss as a tick loss. Neither is inherently wrong but it must match their situation.  Some thrive in either of those situations.  The reason I believe a trading plan (rules applied to strategy) is so important is because it is the only constant.  My situation can change and the market can definitely change.  But no matter what I need that constant part.

The catch 22 of risk

to be continued….

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