"Professional traders appear
over-cautious to the newcomer."
Professional traders limit the risk they are prepared to take on any trade, in accordance with the risk resonance their system possesses - which they are able to find using special tests.
In these tests, a system must show that it is capable of meeting the minimum return demanded by the trader without exceeding his maximum allowable risk - indicated by the highest drawdown level reached.
(In layman’s language the highest drawdown reached is ‘the largest setback experienced in your equity account from its previous highest peak’).
Drawdown experienced is directly related to the amount of capital at risk, so this connection can be used to decide the maximum acceptable risk per trade.
You need not be too concerned about all this technical stuff because it will be covered automatically by your trading method - as long as you use a professional method.
What really matters to you is what it all boils down to - which is:
If you stake too much on your trades you will lose all your trading capital
If that happens you won't be here trading in the markets tomorrow to pick up those big winners your system may be capable of finding.
Professionals know they will get more losers than winners (that's the way it is with commodity trading) - but they also know their winners will be a lot bigger than their losers - that's what their methods are all about producing.
But if you risk too much by going in with too big a stake then you'll end up with nothing left to win with!
The professional's motto is - be here tomorrow - he knows he can do nothing in the markets unless he is.
If professional traders appear over-cautious to the newcomer, you now know why.
Copyright David Bromley 2006
All Rights Reserved.