RISK MANAGEMENT

Let’s talk about the pbvious that almost all traders simply do not care about. all they see is the end, the big boats, the big house, the fast cares they will drive, the bottles they are popping at the club and so on.

When a lot of people sees this as ultimate syccess to trading this will never happen eithout first using strict money management, and even when you get money, if you speed it on popping bottles, driving fast cars, and buying big houses, remeber about the martket cycles of business and life. What goes up must come down, it is up to you to diversify, but that is another topic. for another book.

Risk management is ultimately the single most important factor that will lead you end up profitable even with a 50% winning chance, that basically means that you could gamble every single day on the markets and still end up profitable if your risk management is on point.

Not really like that but you get my point, it is so important that it can turn the worst trader in a profitable treade just by having strict money management.

So if you find yourself trading without risk management, what you are doing is that you are simply trading by emotions and you are gambling, similar to what we talked about in the beginning about casinos and the different colors they use to make your brain subconsciously want to gamble and “play” more. The only way for you to protect yourself and your capital from the markets is by never risking more than should.

By knowing exactly the probability behind the strategy you are trading always scaling out your trades, and always following a systematic approach to your trading.

There are countiess of people who have stepped in to a casino, just to get insanely rich from going all in. And you know what? There are people who actually end up fifthy rich. They walk out the same day, with millions of dollars in their pockets, without realizing that the probability of the happening was 0.01 %

This is the same apporach new traders do when they trade without proper risk management, they just want that big jackpots so they can retire forever, they don’t want put in the hard work and years that it take to build a huge account and ilve of it for the rest of their lives. They simply want to turn 500 dollars in yo 50 million dollars in 1 month.

It is possible, but the probability is, well as you probably know by now, 0.01%, So if you want to try it, go ahead. Just expect to fail a lot of times.

Trading is a numbers game, you nedd to find an edge, once you have that edge, you have to win more than you loose.

Which means if you are risking 10 dollars per trade, you want to aleast double it when you win.

You want to use a strategy that has a least a 50% chance of winning. Because if you only use that strategy over and over again, with a risk reward ratio 1:2. You will end up profitable.

And as you improve as a trader and learn more and more with chart time, your risk reward will go upwards to 1 : 3 sometimes 1 : 5 and your probablity of winning will be 70 %.

Because your skill as a trader is better now with time, so will your profits be. You are basically being paid for your skill, and not your luck. That is where you want to be as a trader.

Remember, even if you have played soccer for 5 years, that does not mean you will beat christiano ronaldo. In fact you will probably have to play for at least 15 years before getting close to his level. And when you do reach that level, you have to work even harder to keep. Same with trading.

You should never risk more than 2 % per trade.

You will risk less and earn more, just by affecting the areas you can affect, simply having control of what you can control, and trying to always perfect your trading.

So as a rule of thumb you do not want to risk more than 2 %.

If you want to have an account where you risk a lot and want to try your luck, open a seperate account and only deposit money you can afford to loose. Meaning if you blow your high rosk account, you can still pay rent and eat food that month.