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Study Guide for The New Trading for a Living by Dr. Alexander Elder

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NINE

Risk Management

Even a brilliant system will not guarantee winning in every trade. This is why every system must include risk management rules. Many creators of promising trading systems keep losing money because of poor or absent risk control.

Each and every system has its drawdown periods. That's when risk management means the difference between life and death. No system will do you any good if you don't manage risk.

Professionals spend much of their time calculating how much money to risk on any given trade and how to vary trade size, depending on market conditions and account equity. Risk management is essential for your survival and success.

You owe it to yourself to earn an excellent rating in this section of the Study Guide—nothing less will do! As traders, we sail on a stormy ocean. Risk management rules are our lifeboats and life preservers. Make sure that your safety gear is in good order.

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Correct answers

 

Question 9-1

  1. A trader feels overjoyed after a profitable trade and disgusted after a losing trade. This means that

    1. he is on the right track; it is important to listen to your feelings.
    2. his mind is clouded by emotions that interfere with making good trading decisions.
    3. he should double the size of his position when he feels happy ...

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