At any given time, traders need to navigate countless factors, conditions, and events that are relevant to the markets. Like an elite sportsperson must expertly be able to pass, shoot, attack, defend, and be aware of surroundings, all while being challenged by their fellow expert opponents, a trader must use their knowledge of chart patterns, position sizing, risk management, and their chosen tools, among many other things, all while taking into account a myriad of external economic factors.
Regardless of your preferred sport, virtually anyone can consistently sink the perfect shot over and over in the comfort of their own backyard, yet few can do it amongst the best, come game time. Likewise, an average trader can theorize the perfect setups, know their tools in detail, and even stay on top of the news. However, following through with applying this knowledge and competently executing trades in real time is another matter entirely.
This is why market downturns and other significant events can quickly have a devastating impact on a trader’s performance. Particularly when dealing with growth stocks, volatility can be fierce. When a position is in profit and the market is showing signs that this may change, it is important to consider the risk of holding onto that position versus taking the profit and moving on.
A major challenge for traders is that in an ideal market, having the resilience and fortitude to stick to one’s strategy gives the opportunity to achieve sizable gains. Yet, at times, it is necessary to recognize and respect what the market is willing to provide. For this reason, it is vital to be ready to exit positions quickly when prices fail to hold key risk management levels.
Being cognizant of the wide range of factors relevant to the market and ultimately being well-prepared to deal with rapid changes is therefore critical to consistently generating profits over the long term. As a result, keeping a focus on portfolio exposure and being quick to sell stocks for either small profits or limited losses can be the only thing that protects investors in these choppy periods.
It is also important to note that no single risk management strategy is right for every trader or every trade, and they must consider their own tolerances and objectives when deciding which strategies to use.