The Simpliest Math Behind Every Succesful Trader

2023年3月1日

What exactly is risk management?

The ability to control your losses so that you do not lose all of your equity is referred to as risk management. This is a system that may be applied to everything that involves probabilities: trading, poker, blackjack, sports betting, and so on.

Many inexperienced traders underestimate the significance of risk management or don't understand the basics when it comes to risk management.

Would you risk $5,000 on every trade if you had a $10,000 trading account? Probably not. Because it only takes two consecutive losses in order to lose everything.

🧠 Now, let's imagine a thought experiment, in wich 🤩Alex and 🤨Peter are both traders with $10,000 in their accounts. Alex is a high-risk trader who puts $2500 risk on every trade. Peter is a cautious trader who puts $100 risk on every trade. Both apply a trading strategy that has a 50% success rate with an average risk-to-reward ratio of 1:2.

For good example, let's imagine the next 8 trades had the following results:
4 losing trades in a row
4 winning trades in a row

Here is the result for Alex: -$2,500, -$2,500, -$2,500, -$2,500 = -$10,000 Loss of the total account 😭😭😭😭
Here is the result for Peter: -$100, -$100, -$100, -$100, +$200, +$200, +$200, +$200 = +$800 Profits. 🏆 🏆 🏆 🏆

Can you tell the difference? See how risk management show the difference between being a profitable or losing trader. Peter managed to recover losing trades, and get into good profits after 8 trades. Alex didn't survive 4 trades...

🚨 You might have the finest trading strategy in the world, but if you don't manage how much you lose, you'll lose it all. It's only a matter of probability and time.
However, following this basic example will assist you to make your trading more profitable. Simply give it a shot.


Kind regards
Artem Crypto
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2023年3月2日

ノート

I left an obvious mistake in the text. Can you find it?!)