Risk Management

How many times do I say that it is the most important job? We are in a bear market, here are two disturbing emails I received this weekend.

Well…I screwed up big time and I’m hoping you can give me some hope. Yesterday (Friday), I bought $100K worth of shares of CBG at $5.63 and I did not put a stop because I was just trying to make a 0.2% profit and thought for sure I could accomplish that. This strategy has been successful for me by taking little chunks of money using my day trading buying power.

Sure enough, the stock plummeted and it closed at $4.90 which puts me at a $16K loss for now.

My response
I cannot give you false hope

CBG is in a downtrend, it is guilty until proven innocent

RISK MANAGEMENT IS JOB #1!!!! seriously, i say it all the time

tough love here…. you will go out of business if you cannot control losses
hope is not a strategy

why didnt you cut your losses quickly?
you WILL GO OUT OF BUSINESS if you CANNOT control RISK

you will go out of buisness!!!

we are in a bear market, CBG is in a downtrend
lot of mistakes here

i wish you the best
brian

Here is another… the first of what I expect will be many victims of the 3x leveraged ETFs.

Thanks a lot for your work on the site. I follow your commentary religiously.

I went long today a little before the big rally, which was good for about 20 minutes. Once I had the trade on, I had to go to class and somehow didn’t put in a stop-loss for my order. I came back and found out my trade was absolutely crushed. (I had on TNA – 3x bull smallcap). It was a pretty serious loss for me, so I’m wondering if you think I would be better off waiting to recoup these losses or if I should bite the bullet and allocate the money to short instead. (Time horizon is not really a big deal for me).

Thanks again for everything you do.

if it were me. I would bail
we are in a bear market

risk management is JOB #1!!!!

brian

I realize that neither of my answers were particularly helpful but the mistakes were very obvious and should have never occurred in the first place. It is like telling a child not to touch the hot stove and when he does, then what do you say? Nothing, you take him to the hospital and let someone more qualified to treat it. A trader should be in the business of risk avoidance, I have been clear about that. To think only of profit objectives and not cut losses is a recipe for disaster. Leveraging 3x long in a bear market is a recipe for disaster. It may sound harsh but if you are making these mistakes you will be giving your money to more experienced and risk averse participants. Risk management is job #1, that is not just a little saying, it should be a lifestyle if you are serious about consistently making money from trading. Please respect risk!

well i would not give you false hope….