Exploring discipline, risk and getting started in trading

Bob Iaccino , Chief Market Strategist and Co-Founder of Path Trading Partners, joins us live every Friday from 11am EST, as our risk management educator.

With 30 years’ experience working as an active investor in equities, commodities, futures and FX there are few better to talk on the subject of risk management.

Bob has developed a method for breaking down his key fundamentals of risk management, in a way that he thinks retail traders can understand and use to get actionable insights to bring into their own trading.

Below are some excerpts of Bob’s thoughts from a recent live session.

If you’d like to save your seat to watch and participate in the next session, register here.

Let’s move into questions:

What are the future trends in risk management and how should you prepare?

When it comes to trends in risk management, there’s nothing new under the sun. If you’re talking about tools, I suspect there will be AI tools that are coming out in the near future, if they have not come out already.

In terms of trends, I’m hoping that we at TradeZero start a trend, because we’ve been within the same trend forever. That trend is: Prior to starting out with real money, you need to figure out how much risk capital you want to put into this endeavour – and again, that doesn’t mean you have to put it all into your trading account at once. Then, you need to decide how much of your capital you’re going to risk per trade on a percentage basis.

Once you’ve learned what percentage of your capital you want to risk, you’re now able to move forward with any technical risk management trend.

As a trend, I see technology designed to help you in your current path of risk management, but it won’t change the core of what risk management is.

What’s the biggest blow-up story you’ve ever heard due to lack of risk management?

I would say that my (blow-up) story is the biggest one. I lost close to six figures in under 9 months, and I did that by thinking the market was wrong and I was right.

That was because, A: I did not have a pre-determined amount of risk and B: I did not have a cut-off price that told me that no matter what I thought, I was wrong.

What are your general risk management rules?

You’ll see a lot of services out there saying: ‘we recommend 2% risk per trade’ – 2% of what? 2% of the money you have in your trading account? 2% of the money you have allotted to this particular process? 2% of your net worth? It makes no sense.

My answer to anyone who asks this question is that this is your question, not mine. I tell every new trader: the best thing they can do for yourself is buy a small mirror and put it on your trading desk – because 8 out of 10 questions you ask, you should be asking yourself.

Here are the general rules: you take the amount of money out of your investible, liquid net worth - let’s say you’re worth $100,000 and you’re willing to lose $10,000. You may decide to allocate 10% of your liquid net worth to a particular process because that’s the amount you’re willing to let go to zero. It’s not likely to go to zero, but it can happen.

For step 2, you need to ask yourself: How many trades does my system or process generate over the course of a day, week, or year. Calculate the amount of trades you take per day over 12 months and if you lost on every single one of those trades over 12 months what % takes you to zero: let’s say it’s 1%, that’s your risk.

Since you’ve made it to the end of the article you may want to join Bob live during his next education session. Save your seat here.

Disclaimer: Live Sessions (hereafter referred to as the “Content”) are produced by TradeZero. The Content may include the views and opinions of TradeZero and a third-party participant, Bob Iaccino. Bob Iaccino is compensated by TradeZero for participating in the Content. Mr. Iaccino’s trading experiences and accomplishments are unique, and your trading results may vary substantially from his. TradeZero is not responsible for and neither affirms nor endorses any of Mr. Iaccino’s views or opinions expressed in the Content. TradeZero makes no representations or warranties with respect to the accuracy of the Content or information available through any referenced or linked third party sites. The Content has been made available for informational and educational purposes only and should not be considered trading or investment advice or a recommendation as to any security. Trading securities can involve high risk and potential loss of funds. Furthermore, trading on margin is for experienced investors and traders only as the amount you may lose can be greater than your initial investment. Likewise, short selling as a securities trading strategy is extremely risky and can lead to potentially unlimited losses. Options trading is not suitable for all investors as it can involve risk that may expose investors to significant losses. Please read the Characteristics and Risk of Standardized Options, also known as the options disclosure document (ODD) at https://www.theocc.com/Company-Information/Documents-and-Archives/Options- Disclosure-Document before deciding to engage in options trading. TradeZero provides self-directed brokerage accounts to customers through its operating affiliates: TradeZero America, Inc. (“TZA”), a United States broker dealer, registered with the Securities and Exchange Commission (SEC) and member of the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corporation(SIPC); TradeZero, Inc., a Bahamian broker dealer, registered with the Securities Commission of the Bahamas; and TradeZero Canada Securities ULC, a Canadian broker dealer, member firm of the Investment Industry Regulatory Organization of Canada (IIROC) and member of the Canadian Investor Protection Fund (CIPF).