Taking on Greater Levels of Risk

Risk comes from not 
knowing what you're 
doing.
Warren Buffett

Education never stops. No matter how long you've been an investor you know and understand that your education is a never ending process. You purchase and read books, newspapers and magazines, to continue your learning and to continue to prosper. While continuing our education you come across books and articles about some of the elite and brilliant traders who have a rare talent for making huge profits in a field where few can excel. "Market Wizards" is how we refer to them and being human we can't help but dream of being just like them.

Unfortunately, the facts tell us very few traders reach the top. The best most can do is evaluate and accept their abilities, and do their best. Pushing yourself too far and too fast doesn't work. It leads to frustration, and possibly failure. You must work at your own pace. This is especially true when one is attempting to take on greater levels of risk. Depending on your risk tolerance, taking on greater levels of risk can make you feel uneasy. If you want to make huge profits as a trader, you eventually need to learn to effortlessly take on greater levels or risk.

Extending ones comfort zone is never easy. For most people, it is a gradual process. For example, first one must learn to put their hard-earned money on the line, and accept what it feels like to lose it. Taking a loss is disconcerting and a little frightening. Losing a few dollars is one thing, but as the amount increases substantially, so does the pressure. It takes a little practice to learn to risk ever-increasing amounts of money and take it in stride. Some people are natural born risk takers. Most traders however have come to their present state; by learning to manage money wisely. The idea of taking larger and larger risks to move beyond your comfort zone can be difficult. You may have a natural inclination to protect what you've worked so hard to accumulate. It's tough to not be a little wary.

How do you learn to take on more risk? Again, it depends on your personality and the amount of trading capital in your account. You may need to train yourself to take on greater levels of risk. Move up gradually; don't make the mistake of moving too fast.

Taking on greater and greater amounts of risk is fear-provoking. If you do it all at once, you move from relatively little fear and anxiety to terrifying amounts of fear and anxiety. To shocking for many. It's better to work up to it. You wouldn't try to run a 10-mile marathon tomorrow if you could barely run a mile today. You would build up your stamina and gradually work up to your objective. It's the same thing with trading. Increase the amount you risk gradually. The rate at which you increase it depends on your personality. Use your own judgment; if you can increase your risk a little each trade, good then try to keep up that pace. If you find that after a month, you've surpassed your comfort zone, well then reduce your risk. The key is to gradually increase your comfort zone, don't force yourself to go beyond your limits. Work at your own pace. If you try to do too much, too soon, you'll just feel overwhelmed and you may never reach your objective. If however you move up gradually, you will increase the likelihood that you will be able to increase the amount of risk you can handle.

Trading is emotional. Taking on greater and greater amounts of risk is stressful. Instead of becoming overwhelmed, and possibly under mining your long-term financial goals, take it easy, and work at your own pace. You'll eventually be able to take on greater levels of risk, and trade more calmly, logically, and profitably.