Fear the market like you fear your dad

I was once a Dean of Students at a private prep school.  I was trained by an “old-school” principal on how to handle various discipline issues among the students.  One advice he always gave me was to call the father (figure) of the student in trouble, “because,” he argued, “every child should have a healthy fear of their dad and wonder — ‘would he really do that?'”.  Would he spank me?  Would he really ground me for 6 months? Could he really take me behind the woodshed?

When trading commodities it’s important to have a healthy fear of the markets, by imagining the worse case scenarios and wondering “would this market really do that?”

adventure-child-father-160816.jpgOnce you identify the worse case scenario, assume that it will happen and size your trade accordingly.  That’s how you manage your risk.  Forget the upside of the trade.  Assume that you will lose every single trade.  Size your trades so that you can keep enough capital to win the next time.  Then you can study and wonder how awesome the markets are, just like you admire the power and might of your father!  🙂


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