Risk Trading vs Risk Averse Trading and pull Back Trading

My good friend RT who is turning upto be an excellent FX Trader in the country is a great source of encouragement to those who'd want to learn from him. He imparts his knowledge free and interested traders can benefit immensely. He is always telling us that there are 2 types of  Traders, and they are Risk taking Traders vs Risk Averse Traders.

If you just search the web for Risk taking Traders vs Risk Averse Traders you will not come up with any material regarding Traders being classed into these 2 categories. Instead you will see many articles covering Risk and Risk Averse. This made me share some insights about them as I believe it is very important for traders.

Risk is something that leads you to danger, or expose your self to disaster, Loss or Damage. On the other hand the word Averse means having a strong dislike of or opposition to something.

When it comes to trading the Danger and the Disaster you carry in taking a risk is huge upto loosing the price you paid or the amount you paid. It becomes even more dangerous when you borrow and buy. So the Risk Trader must understand the reality of Risk Taking to take a risk in the 1st place.

On the other hand Risk Averse means totally rejecting the indulgence of Risk.

Therefore Risk and Risk Averse are 2 extremes. As such it is important to understand the way we get involved with Risk and being Risk averse as Traders.

Most of the Traders in Sri Lanka or Outside are TOTAL RISK TAKERS(TRT). These total risk takers do not have a clue as to why they are taking the Risk. They tend to be highly confident that the trade will succeed. They only think that the stock will go up even if they fall. They do not know or believe of an exit plan.

Apart from these TRT's we have come to notice that there is a selected crowd of PLANNED RISK TAKERS(PRT). They are more matured than the 1st lot, but they are not as big a crowd than the TRTs. They take the trade the moment their trading strategy is triggered. As they stick to a plan they know the BUY,SELL and STOP Rules.

The next crowd is called the RISK AVERSE TAKERS(RATs). They differ from the PRKs only to the extent of waiting for the price to hit an entry target, but wait for it to Pull back before it extends the trend. RATs enter into the position only when they see that the trend is in force and try to buy at a price lower than the high of the present trend.

The above chart shows the difference of Risk Takers vs Risk Averse Traders. Pull Back can be monitored by trend lines and fib retracement levels and many more indicators and Oscillators.

Another important aspect of Trading is knowing the 1st impulse, which I intend covering later.

Short Term Trading Strategies - Update

A life of a SHORT TERM TRADER will not be finished UNTIL he gives it up. The question is WHEN you are giving it up. If you are giving up just as you started it then you need to ask yourself as to WHY you decided to become a trader. There are no UNIQUE TRADING LIFE STYLES for you to master or COPY and PASTE. You may look, read, study, watch videos, write notes, will test your trading and may be you have been testing your strategies through forex demo accounts. BUT STILL you are NOT READY. You are NOT CONFIDENT. You are NOT SURE. As such YOU ARE SCARED. Because you are scared you CAN'T CONVINCE YOUR-SELF. You do not know whether you are a trader or an investor or both. But if some one asks you you'd say you are one of those. Most of those who read these posts and many more articles, HAVE NOT started in buying a single stock. Some have just put in a few 1000's of rupees and sitting on it. Yet they say they are traders. DEAR READERS the 1st thing you need to sort out with you is a PERSONAL DECISION, TELL your self that your are a TRADER, CONVINCE your self, be CONFIDENT, and also BE BOLD.  When you are ready you only have to do 3 THINGS ALWAYS, and I repeat ALWAYS. You need to have the 3 trading rules, and do it for every single trade. THOSE 3 ARE, BUY.......SELL......STOP.......PRICE LEVELS.
A TRADER MUST ALWAYS KNOW THE BUY,SELL AND STOP PRICES, and you must stick to them NO MATTER WHAT. As you are having a STOP PRICE you need to know how much you are willing to loose in rupees. Is it 500, 1000, 5000, 10000 or more you are willing to risk of loosing for every trade.

This is why I have started the Google Sheet for you to use as a guide line, and if you want can follow those trades but strictly based on the 3 price rules. You also can fine tune them to suit your style or thinking. Bring discipline to your trading if you don't have that then you are not a trader. GIVE UP YOU ARE NOT A TRADER............

Latest updates in my Google Sheet is given below:

https://docs.google.com/spreadsheets/d/1YDdK1JHGGSc8i52P21vCK8MNto2-Y0H4l53PLE_ms04/edit#gid=1284556771

ASI - Trending within 100 points channel

Beginning of the year for the ASI had not been bullish in 2015, 2016 and 2017.  The trend failure in the 2nd week of January of 2015 (Peak was 7671), did not recover till the last week of March (lowest being 6760 points) shedding 911 points within a matter of 11 weeks. Thereafter it rallied till the middle of August to peak at 7473 points, adding back 813 points. But the trend reversal made the ASI to plummet for 28 strait months till the 1st week of March 2016 (lowest being 5802 points). Erasing a whopping 1671 points in the process. Then the trend reversed to the upside to hit a high of 6718 in the middle of May 2016. A relatively faster move of 900+ points at a monthly average of 300 points. But this extraordinary movement was short lived as it plummeted again for another 42 weeks. Hitting a low of 5968 points in the last week of March 2017. This time the noticeable difference was that the index shed only 750 points although the drop was longer than in 2015-2016 period. Finally we saw that the ASI finished higher in 2017 with a very small margin of 2-3%.

No one can ignore that the trend had continued into 2018 as well, but the contribution of major counters have not been encouraging, which is not a good indicator. But that doesn't mean that they are not going to contribute moving forward. 

As we are in the month of March, a month that have helped the traders to see trend extensions during the last 3 years, despite the disastrous endings, there is a glimmer of hope in them that has increased the level of sentiments. In that sense the present status of the market is at an important threshold, as the ASI is moving within a channel between 6520 and 6600 points. As can be seen in the Day Chart below you will notice that these areas are critical for the make or break of the uptrend.