• Now the total amount in loss in lower price range stocks is more than the amount that you are profting in higher range stocks. 
• At the end of the day, you are still losing RM238 (-RM350-RM112).
• Now, do you know what is the reason that you can't make a consistent profit? 
• Because of your imbalance in risk management.
• Our risk management rule is to have an even spread of risk and follow Warren Buffet rule #1: Never lose money. 

3. Setting the amount you can afford to lose for each trade.

1. Once you have decided the total fund that you can afford to lose, then we look into each trade risk management. How much are you willing to risk in each trade? From my personal observation of myself, I find that each price point movement losses should stay around 0.4% of your total investment capital. Example: 

2. The losses on each price point move will not offer your emotion. Even if the stocks fall 10 price points, it is only RM800 from the example. It is still the price that you can afford compared to your monthly income. You spend more on online shopping, mobile games or entertainment expenses than this amount. 
3. The first and foremost thing in investment, you should not give yourself too much stress. Or else you will end up gambling on each trade.

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4.  Risk and reward for each trade.
   1. This part will need everyone to take into consideration of the market volatility and investment strategy. Please take note, don’t misunderstand that you should focus on the reward with your expectation. Because we are not the market, we can’t decide how much the stock price can increase but we can follow the market with the right strategy implemented. Let's just focus on risk management first, we will share more about strategy in the future.
   2. For example: if you are willing to risk 1 dollar in a trade to achieve 10 dollars of reward. The market you are investing in must be volatile enough to provide you with a 1 to 10 risk and reward. If the volatility is low, it is difficult for you to achieve a 10 dollars reward. Therefore, you must understand how much the market fluctuates before setting your reward too high to achieve in the market. 
   3. For example at the table below, if we set the risk and reward at 1:3 reward & 7 losing trade out of 10 trades, with each of the trade maximum losses at -$800 :

4. The previous table is an example to show you the importance of risk management. With the right risk management, you can even make a profit with 7 losing trades.
5. But of course, you need to understand your market volatility first. So you will roughly know the potential profit you can make. That's why some traders find it difficult to hit their take profit target without realising the price volatility has changed.
6. The lesson is, understand the market and changes. Because we are not the market, we can't move the market but we can apply changes to ourselves and follow the market by change of strategy, the risk to reward ratio, or even stop trading until the market favours you.
7. Our investment & trading principle always follows the market. With the set of rules we have, it can help us to determine cut loss point, profit point, and entry point differently in each trade based on the market changes. We don’t set a fixed profit point or cut loss point, we follow the market.

Understand the Stock Market

1. Trading Direction: 

• Who are you following in the market? The chart pattern? The indicators?
• The News or Rumours? Do you understand the stock market that you are trading in?
• The current analysis that you are using, does it give you a very clear picture of the price direction? Or just left you hanging and relying on hope after the entry signal?
• Now think back every time after your entry, do you always hope the price will move higher?
• If you are having this feeling, you are lost in the stock market. Is time to find your way out buddy!
• The direction we have in the stock market is to follow the Operator. Are you following them?

2. Understand the market: 

• When you understand how the operators work, you will have more confidence to move in and out of a trade.
• By knowing the market you can increase the probability of winning trade over the losing trade. Because you can avoid moving into false signal stocks.
• Because you understand their intention by looking at the price & volume movement!
• Like how we did, we understand the market (Operator) and this is how we can move in and out in the stock market with confidence!
• This is how we can achieve consistent profit.

3. Discipline on the Facts, not Expectation:

• You must be wondering what we mean by Discipline on the facts, not expectation?
• Ask yourself, are you disciplined now? Or have you tried to be disciplined before but sometimes missed out on some profit because of strictly following the rules?
• If the above happens to you, you are using the wrong analysis and risk management.
• The difference between us and what the other traders commonly use in the market is:

• Do you see the difference? Basically, most of the traders and investors are not following the market. From the entry rules to risk management is just about their expectation.
• We, as a True Trader, follow the market, we always watch what is the intention of the operator and we React to it.
• Are you reacting to the market?
• We hope after reading this article, you will understand more about your trading behaviour and find ways to improve it.

If you enjoy reading our articles, follow us on Facebook or YouTube to learn more about how we follow the operators in the stock market. Feel free to share this article to your trading buddies. Let’s help each other in the stock market!