Risk Management: the Beauty and the Main Principles of it
Hey, magicians, hope you are all doing great and enjoying the holiday season! After receiving multiple requests from you, we are back with another Educational Post and the topic is the following: Risk Management and its Principles.
As we have already discussed in some of the previous educational posts, Risk Management, alongside with other componenets, is one of the most important elements that need to be followed in the world of Trading. If one wants to be successful and profitable in this journey, obeying the fundamentals of Risk Management is a MUST.
We have created a visual illustration which will explain how Risk Management really functions, and how one can be successful by implementing it in a correct way. In order to better understand the table, let us make the following assumptions:
-We are journaling our last 28 trades
-We have risked 1% on each transaction (trade)
-Our win rate is only 50%
-We do not have any BREAKEVEN trades, meaning we have left all our positions run open till TP/SL
As we can notice from the graphical illustration, most of the trades have different Risk-To-Reward ratios (for example: 1:3, 1:2, 1:1.8 etc.). With only 50% win rate, our Winning Trades will make us a nice +35.2% return, while the losing trades will set us back by -14%. If we do quick maths, we will see that the total return from our last 28 trades will constitute 21.2%!
There is no "Holy Grail" in trading, but following the principles of Risk Management can lead one to the door of consistency and profitability. Of course, Risk Management is not the only element, as psychology, patience, mindset, and some other factors should be considered and mastered as well.
We will be looking forward to covering other psychological aspects of trading in the next few educational posts! Until then, stay safe and happy, and if you have any requests or proposals, feel free to let us know in the comment section below!
Investroy would like to wish you all a Merry Christmas and a happy upcoming New Year!
As we have already discussed in some of the previous educational posts, Risk Management, alongside with other componenets, is one of the most important elements that need to be followed in the world of Trading. If one wants to be successful and profitable in this journey, obeying the fundamentals of Risk Management is a MUST.
We have created a visual illustration which will explain how Risk Management really functions, and how one can be successful by implementing it in a correct way. In order to better understand the table, let us make the following assumptions:
-We are journaling our last 28 trades
-We have risked 1% on each transaction (trade)
-Our win rate is only 50%
-We do not have any BREAKEVEN trades, meaning we have left all our positions run open till TP/SL
As we can notice from the graphical illustration, most of the trades have different Risk-To-Reward ratios (for example: 1:3, 1:2, 1:1.8 etc.). With only 50% win rate, our Winning Trades will make us a nice +35.2% return, while the losing trades will set us back by -14%. If we do quick maths, we will see that the total return from our last 28 trades will constitute 21.2%!
There is no "Holy Grail" in trading, but following the principles of Risk Management can lead one to the door of consistency and profitability. Of course, Risk Management is not the only element, as psychology, patience, mindset, and some other factors should be considered and mastered as well.
We will be looking forward to covering other psychological aspects of trading in the next few educational posts! Until then, stay safe and happy, and if you have any requests or proposals, feel free to let us know in the comment section below!
Investroy would like to wish you all a Merry Christmas and a happy upcoming New Year!