๐ Hereโs Why You Need Proper Risk Management In Trading
Imagine there are two traders, Peter and kim. They both start with a $1,000 account. Peter is an aggressive trader and he risks $250 on each trade. Kim is a conservative trader and he risks $20 on each trade. Both adopt a trading strategy that wins 50% of the time with an average of 1:2 risk to reward. Over the next 8 trades, the outcomes are Lose Lose Lose Lose Win Win Win Win.
Hereโs the outcome for Peter:
-$250 -$250 -$250 -$250 = BLOW UP
Hereโs the outcome for Kim:
-$20 -$20 -$20 -$20 +$40 +$40 +$40 +$40 = +$80
Do you see the power of risk management? So hereโs the deal: As a trader, youโll encounter losses regularly. But with proper risk management, you can contain these losses till it feels like an โant biteโ ๐ป
Imagine there are two traders, Peter and kim. They both start with a $1,000 account. Peter is an aggressive trader and he risks $250 on each trade. Kim is a conservative trader and he risks $20 on each trade. Both adopt a trading strategy that wins 50% of the time with an average of 1:2 risk to reward. Over the next 8 trades, the outcomes are Lose Lose Lose Lose Win Win Win Win.
Hereโs the outcome for Peter:
-$250 -$250 -$250 -$250 = BLOW UP
Hereโs the outcome for Kim:
-$20 -$20 -$20 -$20 +$40 +$40 +$40 +$40 = +$80
Do you see the power of risk management? So hereโs the deal: As a trader, youโll encounter losses regularly. But with proper risk management, you can contain these losses till it feels like an โant biteโ ๐ป
