It is said that only 10% of traders become successful, all of them have something in common, they have great risk management. Here is everything you should know about it 🧵
Risk management is present in every aspect of our life, when we drive our car, when we take a walk, go to the beach, etc. In all those situations we value the risks and act consequently. It is the same in trading.
Risk management is basically the process in which we manage the losses that we could possibly have. Before entering a position we should know our targets, the position size, and the leverage in which we will trade. The theory is simple, let’s get to the practice!
Stop Loss, never trade without it, trust me. We will set our stop loss where the trade doesn’t make sense anymore, in other words, the invalidation point. The take profit has to be set in zones where the price is likely to reverse (equals, SSL, BSL, trendlines, old high/low, etc)
Stop Loss and Take Profit will determine our risk-to-reward ratio (RR) Which is the number in the middle of the position of TradingView. If for example, the RR is 4, that means that per every 1$ risked, you are winning 4$ if the price gets to the TP.
RR is for me the main tool for risk management, you don’t need a win rate of 90% if your RR is high enough, you can have maybe 35% and still be profitable. Below you can see a table that shows the win rate percentages and the RR that we need to be profitable at every level:
We cannot be flexible about the percentage of the account that we are willing to risk, if your trading plan says that in every trade you will risk 1%, that’s it.
I risk 2% of my account but if I lose one trade, I halve my risk (1%), if I lose another trade, 0,5%. Until I make back 50% of the money lost risking 1%, and when I make 50% of the money lost with 2%, I start risking 2% again, that’s my RM strategy and it has to be solid!
This doesn’t mean that we trade with only 2% of our capital, it means that if we hit the SL, we will only lose 2% of our account.
How do we calculate the position size? Very easy, in my case I use calc.trade, which is an online calculator in which you fill the gaps and it gives you the position size. (I always use 10x leverage, you can change, that’s what I feel comfortable with)
Hope you learned something new today! Risk management is crucial and you should take it seriously!
Take care fam,
Fuster
Take care fam,
Fuster
What are your thoughts on this?🫡
@jonzitrades
@Tradinator33
@duje_matic
@aIlseeingeyes
@RektProof
@Crypto__Ken
@inmortalcrypto
@EZCharts_
@doerXBT
@4500px
@jonzitrades
@Tradinator33
@duje_matic
@aIlseeingeyes
@RektProof
@Crypto__Ken
@inmortalcrypto
@EZCharts_
@doerXBT
@4500px
How do we calculate the position size? Very easy, in my case I use calc.trade, which is an online calculator in which you fill the gaps and it gives you the position size. (I always use 10x leverage, you can change, that’s what I feel comfortable with)
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