Risk vs. Volatility


There is a great misunderstanding between the concepts of risk and variability:

Volatility describes the natural fluctuations in your account balance that arise from the nature of trading. Losses are a normal part of this venture, and you can not control which transaction will be profitable and which is not – even when the entry signal looked identical.
The risk is when when you are away from your trading plan and you’re taking a deal that you shouldn’t take or you lose more money than you had planned.
While volatility is a normal part of trading that you can not avoid, the risk can and must be managed and controlled.
Of course, there are situations beyond your control and those you have no control over, e.g. how the price moves. However, if you have a strategy that gives you a proven advantage and you’ll focus on the process and things you can control, for instance what you trade with, when you effect and when you exit the transaction or what tools you use, you avoid many risk factors that ruin so many trading accounts every day.


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