Before you do anything new in life it is often important to be aware of the risk as well as the reward.
It does not matter how much you trade with, the formula for risk management remains the same.
Here you will see our Analyst Thomas go through a proven risk management formula, and how it looks on a chart.
We strongly recommend taking handwritten notes and putting the formula into practice.
To make life easier for you, we have listed this video's chapters and point out the key points of the lesson.
Before you do anything new in life it is often important to be aware of the risk as well as the reward.
It does not matter how much you trade with, the formula for risk management remains the same.
Here you will see our Analyst Thomas go through a proven risk management formula, and how it looks on a chart.
We strongly recommend taking handwritten notes and putting the formula into practice.
To make life easier for you, we have listed this video's chapters and point out the key points of the lesson.
Key Points of the Lesson
GENERAL INTRODUCTION TO TRADING
Setting realistic expectations.
Calculating risk correctly and using stop losses.
Defining an edge, making a plan for each trade.
EXPECTATIONS
Trading takes time ⇒ 8-12 hours per day as a professional trader.
Losses are normal in trading ⇒ accept and learn from them.
Average of 3-5 years to become consistently profitable.
Trading is not a “get-rich-quick” scheme.
Focus on the long-term vision, not the short-term picture.
Longevity through excellent risk management is the goal.
CALCULATING RISK
Small risk per trade ⇒ can withstand losing streaks.
High risk per trade ⇒ out of business after a losing streak.
Stay away from high leverage ⇒ otherwise too much capital is at risk per trade.
Maximum 1% account risk per trade recommended for beginners.
PRACTICAL EXAMPLE RISK CALCULATION
Stop Loss= 4 %.
Account risk = 1%
with 5400$ account 1% = $54
Position size: $ risk / (SL% / 100).
⇒ 54 / (4 / 100). ⇒ 54 / 0.04 = $1350 = trading amount.
With a Risk/Reward ratio of 3:1 we either loose 54$ or we win $162.
DEFINING YOUR EDGE
An edge is repeating the same procedure hundreds of times and being consistently profitable.
Without an edge you are gambling.
If you have not worked out your edge, don’t trade.
MAKING A PLAN
No plan = no trade.
Know where you are going to exit the trade before you enter.
Always stick to your plan.
Keep it simple, your plan and strategy do not have to be complex ⇒ strive for a simple approach.
TIPS & TRICKS
There is no best way to trade, only the way that works for you.
Pick an area/asset and master it before moving on to the next one ⇒ swing, day or scalp trading, crypto, stocks…
Stay humble, you are always a student of the markets.
TAKE HOME MESSAGE
Set realistic expectations.
Calculate risk for each trade.
Define your edge, and make a plan.