The first part of the dirty little secret was revealed here The Dirty Little Secret

Here’s the new stuff for Part 2.

Institutional traders often do a better job attending to the money management (position sizing) and risk management aspects of trading compared to independent traders because they are sometimes forced or monitored to follow rules by their managers or rules of the firm.

Most independent traders who are struggling or long-term breakeven focus on the entry, but profitable traders know the exit is always more important than the entry. And I’m not just talking about stop loss, I’m talking about trade management, expectations, flexibility, and other aspects of trading that represent a weak link for most. More on this in a future blog entry.

Successful institutional traders, especially the very biggest, know that performance has a lot to do with risk management. In fact, another dirty little secret, one that is primarily confined to institutional trading, is that the bigger you get the more important risk management becomes. I’m not saying that small private traders can ignore risk management, far from it; they can get knocked out of business quite easily if they’re not careful. But the biggest and the best of the pros not only understand on an intellectual level the importance of risk management; they have internalized it, and operate from a completely different perspective.

I’ve worked with big bank traders, and being an active independent trader myself, I would say that understanding our self and self-management is often the key to unlocking the door that prevents us from doing all that we can to achieve maximum success over time. Many traders are so close to getting beyond the level of long-term breakeven or meager returns, and yet they will not take the extra step needed to look inside.  Why?

I will talk about ‘why’ in another post.