🔹 Technical Analysis MASTER-CLASS:

Part 1 - 'How not to lose your money' 💸

Please read and share. This might help a trader avoid losing it all.

A thread. 🧵

Fact: 90% of traders lose money.

We’ll learn how to be in the top 10% by mastering Risk Management in the upcoming threads. It’s the most crucial yet most overlooked concept.

In my opinion, ALL trading knowledge is useless without proper Risk Management. Period.

Since 90% of traders lose money due to lack of risk management, we don’t need to emphasize its importance any further.

⚠️ If we don't manage risk mathematically, we WILL lose all our capital. FOR SURE.

In this thread, let’s focus on:

‘Optimum Position Sizing’

📉 The 5% Rule:

Never risk more than 3-5% of your portfolio on a single trade. 💵

Personally, I prefer 3%; 5% is more aggressive.

This may sound counterintuitive, but let’s dig deeper. 🔍

Trading with only 5% of your capital doesn’t mean your trade size is only 5% of your total capital.

It means you’re risking 5% of your equity in a single trade.

No matter what happens, you will not lose more than 5% of your equity on any single trade.

Your Trade Size will depend on the leverage applied to that 5% equity. 📊

Here’s an illustration:

If you risk 5% of $100,000 (which is $5000), your position size can be $100,000. Leverage is the tool that allows this.

⚠️ Caution: This is just an illustration. We will discuss leverage later.

Leverage is determined by your Stop Loss, which is based on Technical Analysis.

I only use technical analysis to set the stop loss. Leverage is then adjusted accordingly. ⚖️

We’ll cover leverage application in the “Stop Loss” thread. 📝

❓ Why risk so little capital?

Mathematically, even with a high win rate (say 70%), you’ll eventually face 6 consecutive losing trades.

High-risk trades have historically been proven to wipe out capital.

Here’s the math: If you risk 40% of your capital per trade and lose 6 times in a row, you’re done. 🚨

Surprisingly, the most successful traders usually have a win rate of around 40%. 🤯

So, how do they profit despite low win rates?

The key is achieving a good Risk-to-Reward (R:R) ratio over time.

In the next threads, we’ll explore R:R, Stop Loss placements, and how to use leverage effectively.

Risk Management 101:

Never risk more than 3-5% of your equity on a single trade.

Position size matters, not leverage.

Your position size can be as big as needed, but the risk remains only 5% of your equity.

Leverage should always align with your stop loss. ⚖️

🔥 Remember: DON'T RISK MORE THAN 5% ON ONE TRADE.

This concludes Part 1 of Risk Management: Optimum Position Sizing.

It might seem boring, but it’s THE MOST IMPORTANT part of trading.

Read it multiple times. 🔄

The next part of Risk Management is coming soon. ⏳

Please share this thread to help a fellow trader. 🤝

Love,

Shadow. 🖤