Trading Tutorial Thursday #1: Risk management
Why do most traders fail in the long term? It's not because they have a bad strategy or because they find it hard to keep an >50% Win Loss ratio; it's because of their lack or RISK MANAGEMENT. Quite simply put; in order to stay profitable in this game you need to become a master at risk management first.
In a nutshell:
- Aim for over a 1:1 Risk/Reward ratio
- Try to use consistent lot sizes OR the same amount of risk for each trade
- It's possible to be profitable with less than a %50 Win rate
- It's also very possible to lose money with more than a %50 Win rate.
Of course you don't have to stick to the same position sizes forever unless you want to put a cap on your profit potential. Instead, what I do is I like to set out set position sizes for the week/month to allow for account growth while keeping the same risk management principles in place.
These concepts are by far the most important factors in long term success of a trader and should be the first thing to begin practising because no strategy or indicator will make you profitable without the right risk management.
Key tips for keeping this in place:
- Have a plan before you enter any trade and that must include:
- Entry points
- Stop loss and how much you will lose if you get stopped out
- Exit points where you plan to take profits
- STICK TO THE PLAN
-Once your trade begins to make profit: DO NOT PANIC and try and lock in profits as this is exactly what most beginner traders do that will lead them to wiping their account.
- Similarly, don't continue to move your stop loss lower in hopes that price will bounce back soon.
Its as simple as that: master these concepts and then you can work on your strategy more at which point you'll start to see consistent profits start to come in.
If you enjoyed then please consider liking and following me. I'll be uploading one tutorial a week to help with various aspects of trading psychology, risk management, strategies and so on. If there's anything in particular you guys would like to learn please let me know down below. Thank you guys and keep at it, if you do then you'll make it in the end.
Why do most traders fail in the long term? It's not because they have a bad strategy or because they find it hard to keep an >50% Win Loss ratio; it's because of their lack or RISK MANAGEMENT. Quite simply put; in order to stay profitable in this game you need to become a master at risk management first.
In a nutshell:
- Aim for over a 1:1 Risk/Reward ratio
- Try to use consistent lot sizes OR the same amount of risk for each trade
- It's possible to be profitable with less than a %50 Win rate
- It's also very possible to lose money with more than a %50 Win rate.
Of course you don't have to stick to the same position sizes forever unless you want to put a cap on your profit potential. Instead, what I do is I like to set out set position sizes for the week/month to allow for account growth while keeping the same risk management principles in place.
These concepts are by far the most important factors in long term success of a trader and should be the first thing to begin practising because no strategy or indicator will make you profitable without the right risk management.
Key tips for keeping this in place:
- Have a plan before you enter any trade and that must include:
- Entry points
- Stop loss and how much you will lose if you get stopped out
- Exit points where you plan to take profits
- STICK TO THE PLAN
-Once your trade begins to make profit: DO NOT PANIC and try and lock in profits as this is exactly what most beginner traders do that will lead them to wiping their account.
- Similarly, don't continue to move your stop loss lower in hopes that price will bounce back soon.
Its as simple as that: master these concepts and then you can work on your strategy more at which point you'll start to see consistent profits start to come in.
If you enjoyed then please consider liking and following me. I'll be uploading one tutorial a week to help with various aspects of trading psychology, risk management, strategies and so on. If there's anything in particular you guys would like to learn please let me know down below. Thank you guys and keep at it, if you do then you'll make it in the end.