Bankroll and Risk Management, Risk to Reward Ratio - EDUCATIONAL
In this example I am showing you how important is RIsk Management in your trading system.
You could be the most talented trader in the world with a natural eye for investment opportunities, and still blow your account with one bad call without proper risk management. No matter how good you are, or how experienced you are, you’re still going to incur losses. Even the best traders in the world suffer losing trades - it’s part and parcel of trading. That’s why risk management is so important to your trading.
One way that you could strike the right balance between reward and risk is to stick to a reward:risk ratio such as 2:1 or even 3:1, where your targeted profits are always double that of your maximum losses. So even if you suffer three losing trades, you’ll only need two profitable ones to ensure your total profits outnumber your losses if you stick to this reward:risk ratio. Although it’s not a general rule to follow, it can help you to visualise a specific approach to risk management.
"It's not important whether you are right or wrong. It's about how much money you make."
That means that you can still win 4/6 trade and you are still loosing money.
In the example showed you can see that investing different amount of money in each trade can drive to a negative ROI even if yours winning rate is over 66% .
You could be the most talented trader in the world with a natural eye for investment opportunities, and still blow your account with one bad call without proper risk management. No matter how good you are, or how experienced you are, you’re still going to incur losses. Even the best traders in the world suffer losing trades - it’s part and parcel of trading. That’s why risk management is so important to your trading.
One way that you could strike the right balance between reward and risk is to stick to a reward:risk ratio such as 2:1 or even 3:1, where your targeted profits are always double that of your maximum losses. So even if you suffer three losing trades, you’ll only need two profitable ones to ensure your total profits outnumber your losses if you stick to this reward:risk ratio. Although it’s not a general rule to follow, it can help you to visualise a specific approach to risk management.
"It's not important whether you are right or wrong. It's about how much money you make."
That means that you can still win 4/6 trade and you are still loosing money.
In the example showed you can see that investing different amount of money in each trade can drive to a negative ROI even if yours winning rate is over 66% .
The above references an opinion and is for information purposes only. It is not intended to be investment advice.