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Risk management is more important than predicting the future

Everyone wants to predict the future. It’s fun to speculate and guess what will happen next in the market. So everyone tries to do it.

This can be a fruitless effort though.

See, the problem with making predictions is your ego. You want to be right so bad. For many beginners and experts too, the position themselves too much based off overconfidence in their predictions.

I was overconfident in October that we would see a market drop. I strongly believed that there were a multitude of factors that would bring the market down.

We had no real China trade deal.

Even so, earnings were going to be down year over year.

Even so, the Fed was going to cut rates, and after they cut multiple times earlier in the year the markets sold off.

Even so, the economic numbers didn’t look good.

Even so, the repo markets were out of control to the point the Federal Reserve felt the need to intervene.

The market just had to go down, right?

Well, I was wrong and lost too much money as a result.

No matter how right you think you are, there is a good chance you can still be wrong. It may not make any sense. None of this rally over the past six weeks made sense to me. But it happened, and I didn’t manage risk properly and I suffered the consequences.


Author: Trader Court

CPA first, pivoted to python programmer focused on data science which I apply to my own stock and options trading.

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