M O D U L E
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THE 3 TYPES OF RISK
The best traders know all the risks of trading.
EMOTIONAL RISK
MARKET RISK
TRADE RISK
PROS: 100% in your
control.
PROS: we are not in control of the
market at all! “Expect the
unexpected” is the hallmark
description of this risk.
PROS: 100% in your
control.
CONS: A bad attitude or
an inability to use
emotions to one’s benefit,
will be a hindrance to an
otherwise technically good
trader.
CONS: many traders think they can
predict what the market is going to
do next and their accounts suffer
from this kind of arrogance.
CONS: If you do not
decide how much money
you are willing to lose
things can spin out of
control very quickly in a
volatile marker.
EMOTIONAL, MARKET, AND TRADE RISKS
EMOTIONAL RISK
Commonly known as the “trader’s mindset” or “trader’s psychology.” Your mindset is 100% in your control. As
many have said over the decades, 90% of traders fail and it is due to their psychology. Our mind is where most
of our trading occurs. The more you know yourself and understand your motivations, the more in control of
your trading you will become.
MARKET RISK
Every time a trader opens a trade, he or she is subject to market risk. Market risk is completely, 100% out of
our control. We cannot control what the market does, nor can we possibly know the outcome of any trade and
to think otherwise will cause great pain.
TRADE RISK
Trade risk comes to down to 1 thing: how much money are we willing to lose on a trade. How much money
we are willing to lose must always be determined and decided on before we enter the market. Trade risk is
100% in our control.
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