One of the main themes
And perhaps the most important is the theme risk management and risk reward.
Beginners often do not take this theme seriously, trying to win the jackpot on every trade, risking all or almost all capital and not realizing what the consequences of such actions may be.
Whichever trading style you use, be it day trading or scalping, how you manage risk will still be decisive in whether or not you will be profitable from a distance.
Margin trading offers many advantages, but most of the time it ruins newcomers who open deals with high volume and lose money quickly when the price goes against them.
The ability to manage risks correctly will help you stay in the game for a long time and be profitable from a distance.
Focus on protecting what you have.
In the pursuit of profit, traders forget about risks, they forget about capital protection. It is important to remember that after each loss, the percentage of profit that must be returned to break even increases exponentially, depending on how much you lose.
Fundamentals of Risk Management
The market is changing every second and at any moment there may be news that will make the price wow against him.
The desire to risk everything in a transaction leads to the closing of accounts For beginners, on the other hand, it is better to manage the risks and stay in the game for a long time, making a profit.
Anything can happen in the markets and it is simply unwise to risk everything on a trade.
You must remember:
1. You should not risk more than you can afford to lose.
2. Each trade must be opened at the correct risk reward ratio. ( RRR )
The Reward Risk Ratio ( RRR )
it is how much you are willing to lose, compared to the expected profit on each trade.
You should strive for a less risk/more reward ratio.
One of the best ways to manage risk is the 1% method.
This method of risk control means that in each transaction a trader risks 1% of his capital.
This is used correctly even by the managers of large hedge funds and they do it for a reason.
Do not think that only 1% of the capital can be traded. You can use at least all your capital to trade, but your stop loss should not be higher than 1%, this is your risk. You can use leverage if you need to, but don’t lose more than 1% on a trade if you want to go pro.
The Best Risk-Reward Ratio For Trading
Before opening a position, you should know how much you stand to lose and how much you expect to gain, and the ratio should not be less than 1:1.
A ratio below 1:1 means that you lose more than you can win, and this is an extremely dangerous activity that can eventually lead to the loss of the entire account.
If the ratio is 1:1, it will break even, even if 50% of their operations are not profitable. If the ratio is greater than 1:1, then it will be black, even if more than half of their operations are closed in negative.
Do not forget that it is impossible to win on every transaction and without proper risk management such a game will lead to huge losses.
Do not forget about the rules of risk management, use a profitable strategy and act according to the rules, do not give in to emotions and then success awaits you.
Share your opinion in the comments and support the idea with Likes.
Thanks for your support!