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Risky business. No, I’m not talking about the Tom Cruise movie: I’m talking about trading. Simply put, trading is a risky business. But with risk comes reward, and that’s why you can potentially make so much money as a trader.
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If you’re uncomfortable with risk, you’re not alone. However, to improve your trading, you’ll need to become more comfortable with risk, because it’s always going to be part of the process. Follow these 8 tips, and you’ll be well on your way to being more fearless and far less risk-averse in your trading.
1. Learn the basics. On the one hand, learning the basics of the stock market might not seem like it has a lot to do with risk management. But when you really think about it, establishing a knowledge base is at the core of becoming more comfortable with risk…start by reading this free stock trading guide and watch these free video lessons too.
Risk is inherent in trading. You cannot change this (sorry). Honestly, the best you can do is try your best to mitigate that risk, and the most effective way to do that is to increase your knowledge through intense preparation and study. Improving your knowledge of the rules of the market, observing past trends, and applying this information as you trade will make it far easier to take calculated risks.
Just like this greatstudent says over and over:
In the Tim Sykes Millionaire Challenge, I guide my students through the basics of trading and beyond, so that they can use all of the tools at their disposal to make smart investment decisions.
2. Do your homework. This is an extension of the previous tip, but nonetheless important to discuss. To become more comfortable with risk, it’s important to do your homework.
What do I mean by “do your homework”? I mean that as a trader, you always have to do everything that you possibly can to be prepared. Beyond learning the basics, this is something you will have to do for the rest of your trading life.
Before making a trade, do the necessary behind the scenes work. Research the companies, and identify markers of success or red flags.
Watch this other free stock trading guide on how to be properly prepared on each and every trade.
You probably wouldn’t even buy a pair of shoes without looking up online reviews, so why would you throw your money into an enterprise where you haven’t done your research? Make this a habit and you’ll improve your chances of making millions.
3. Surround yourself with success. Most successful traders have attained a certain level of comfort with risk. To a certain degree, surrounding yourself with successful traders like this can have a positive “rubbing off” effect.
When you immerse and surround yourself with people, subconsciously you begin to take on their attitudes and habits. This makes it especially important to surround yourself with aspirational, inspiring people. If you surround yourself with successful traders who are comfortable with risk, over time it will increase your comfort with risk, too.
I’m talking about great traders like this who make thechatroom my favorite chatroom of all-time!
4. Consult with your mentor. I never had a mentor and that sucked so it took me SO much longer to learn basic rules…when you do get a mentor, ideally via mysince we have several millionaire traders now coaching others, understand that they are further along in their trading career than you. This means that they can be an invaluable source of advice and insight. This holds true for all aspects of trading, but particularly with risk.
Your mentor has had to contend with risk him or herself, and probably has some sage words of advice. When they speak up about how they increased their threshold for risk, listen up: there’s a lot of wisdom there that can help you avoid a lot of discomfort in your own career! Let your mentor be one of the secrets to your success.
5. Anticipate potential results. Considering potential outcomes of a trade can assist in making you more comfortable with risk. Before you pull the trigger, pause to think: what’s the best/worst that could happen? Is that outcome something I could live with?
If you’ve done your homework and are trading in a way that has delivered good results before, then you can feel more confident in taking a risk. However, if upon reflection of potential results you feel even less confident, it could be a sign that this isn’t a positive risk to take. Know the difference!
6. Do the right thing. Have you ever heard the phrase “sometimes the hard thing is also the right thing?”. This is very true in trading.
Ironically, the fear of risk can make people gloss over some details because they just “don’t want to know”. It’s easy to fall into the trap of taking shortcuts because things seem hard or intimidating. But ultimately this will make your trades more risky, because you won’t be coming from a place of preparedness and risk reduction.
I always urge the Tim Sykes Million Challenge team to be responsible in their trading, and do the things they know they should, even when they don’t feel like it. It makes them better traders.
7. Stop avoiding risk. Just do it. Or rather, don’t do it, when it comes to avoiding risk. Often, the thing we run away from the most seemingly crops up the most often. So why not come to a place of peace with risk rather than fighting or resisting it?
If you’re constantly stressed out about the very prospect of risk, it’s going to hold you back from seeing straight and from finding success. So stop fighting it! Embrace it…or at the very least, accept it.
8. Know that you will make mistakes. This tip works in tandem with the previous one. Basically, this is the reality check. Whether or not you avoid risk, love it or hate it, you need to know that it is part of the trading process. So is making mistakes. Even the best-laid plans sometimes don’t work out.
Don’t let this get you down. Rather, let it be freeing. Everyone will make a mistake (more than one) over their time as a trader. You included. Do the best you can, and try to recover quickly when it does happen, but know that it simply goes with the territory.
As unpleasant as it may be at times, risk and trading go hand in hand. While few ever truly love risk, it’s important to come to a place of accepting it. You’re not going to change that it exists, so rather than fighting it, work with it. It will improve your outlook, your optimism, your trading, and maybe even your life.
How comfortable are you with risk?