Each day, active investors are tasked with digesting and analyzing the market landscape. We do this as a means for managing risk within our portfolios and prospects. Before, during, and after the bell, we are rushed with ideas, analyses, and opinions; StockTwits and Twitter light up with ideas galore, and the traditional media flashes headlines in our faces. But one thing that often gets overlooked, and I would argue is more important to your investing performance, is your experience and understanding of yourself. In my opinion, this is what separates a good investor from a great investor.
What is your risk profile? Time frame? Inherent bias? The more honest and forthcoming you are with yourself, the better your bottom line will be. Managing risk means knowing yourself.
Sounds simple enough. But like any relationship, it takes work. Over time, we evolve as people… and we should evolve as traders. Managing risk in an active environment means that we need to be in tune with our strengths and weaknesses. This is what separates value investors from growth investors. Active investors from passive investors. Long-term investors from short-term investors. It’s important to understand that you can win under any of these umbrellas… you just have to find which umbrella fits you best.
Experience definitely helps us to find ourselves, define ourselves, and refine ourselves. Here are a few suggestions on managing risk for novice investors:
1. Take notes and keep a trading diary. I have been trading for 15 years and I continue to learn from all my winners and losers. It is within this experience that we find the ingredients for consistent success. Keep a trading diary and learn from each investment.
2. Defend your confidence. Success often begets more success as long as we understand where it comes from. When we are confident, we are more open to risk, which can be a good and bad thing. Defend that confidence with a plan. Managing risk equates to small losses and solid gains.
3. Look beyond the headlines. Don’t get bogged down in the latest news. Major media outlets use the same “news” to reason why a market is up, and later down, within the same day. Stay focused on your investing strategy and time frame. And realize that it is unique… and this is okay.
Also read: “5 Disciplines For Successful Trading“
No positions in any mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.