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5) Never blow an account again (Risk Management)
🕑 Added 2022-12-02 19:56:31 +0000 UTCThe word RISK MANAGEMENT has connotations of being BORING and not NECESSARY.
Well that's what i thought when i first heard about it.
This was the first topic in my syllabus,
but I SKIPPED IT, simply thinking this is THEORY, I wanted the PRACTICAL to learn HOW to actually trade.
I was WRONG.
Learnt the hard way by LOSING 20 THOUSAND British pounds.
But I did not CRY about it, just realised that's the PRICE I had to PAY to LEARN.
Some people pay LESS some people pay MORE.
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CLEVER people learn from their OWN mistakes. INTELLIGENT people learn from the mistakes of OTHERS.
Take my word for it.
At my firm i started as the WORST TRADER simply because i disregarded MANAGING my RISK.
I would WIN 6 Trades in a ROW, then 1 LOSS would wipe out all my PROFITS.
Or I would win SMALL profits and then lose BIG continuously.
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That is when I realised:
Risk management is the most important.
This is what PROTECTS you from losing BIG.
Understand that losing is part of the game.
For example:
Footballers play to reach the top of the league at the end of the season.
They EXPECT to lose games.
They understand that losing is part of the game, but its about how MUCH you lose by.
As long as you come out ON TOP then the LOSSES DOES NOT matter.
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It's important to realise that trading is a PROBAILTY game, you are going to be wrong a lot of times.
It doesn't matter how many INDICATORS you put on or how confident you are.
Trades will FAIL occasionally.
It's in those situations where having emotional control and sticking to your plan is key.
So why not MANGE your risk if you are going to lose ANYWAY.
HOW MUCH you lose, will DETERMINE if you come out on TOP or not.
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ENTRY
The DIFFERENCE between winners and losers is that winning traders PLAN THEIR ENTRTY.
This is usually with LIMIT ORDERS.
Whilst losing traders either enter with:
- MARKET order as soon as THEY FEEL price is going to LEAVE without them.
- When a FAKE trader with huge following tells them to buy, so they RUSH to enter.
This is a one way ticket to BLOWING your account.
This isn't the TA series yet but I will share a few words,
LOOK at HIGHER TIME FRAME, DRAW YOUR LINES AND WAIT FOR PRICE TO REACH THAT WITH LIMIT ORDERS.
If you wait and your entry doesn't get filled and price has already PUMPED without you,
LEAVE IT.
Don't be stupid and buying random coins that you feel might pump.
Trade with CERTAINTY.
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Stop Loss
What is the actual PURPOSE of a stop loss?
It is to PROTECT the account balance of a trade that's not gone the way you EXPECTED.
This means you EXIT as soon as the trade is not following your PLAN.
This brings me to a good point.
Your stop loss should be at an INVALIDATION LEVEL.
A place where if the trade goes below then it it CLEARLY going against your plan.
You should ONLY be LOOKING at the CHARTS to base your stop loss.
Too many people USE a percentage to determine this.
OR they decide how much thy want to lose.
Only look at the chart and that will tell you where to put your stop loss.
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Risk to Reward
You should NEVER:
CHASE A TRADE THAT HAS ALREADY PUMPED AND THEN PUT A STOP LOSS BELOW SUPPORT.
Your risk to reward is not suitable.
RISK is amount of money you are willing to lose relative to the reward.
How do you calculate this?
It is Reward / Risk.
Here's an example.
If a trader goes LONG, and there stop loss is $50 below entry. They are willing to risk 50$. With a take profit reward of $200.
$200 / $50 = 4R
This is SUITABLE for a trade.
The BIGGER the risk, the less the R is which is NOT suitable.
Note that this should only be BASED by LOOKING at the CHARTS.
You can not just aim to hold to a target which you DESIRE.
Trade the charts as you SEE IT.
Not what you want.
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Once we reach POST NUMBER 10, we will start a Technical Analysis series.
This won't be 50 minute videos where people go RAMBLING on.
This will be STRAIGHT to the point.
Because we live in a world where focus is NOT so easy.
You have TikTok, YouTube and Instagram reels which are SHORT form content.
The attention span of this generations has DECREASED significantly.
The AVERAGE person nowadays can't watch a 1 hour educational video LET ALONE read 5 pages of a book.
So I will keep it concise, yet more advanced, when we get more technical.
@ionicXBT
Comments
Absolute must-have knowledge. Great lesson learned, now let's put it into practice.
This is very important lesson!
