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Why Managing risk is the most important

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  • Why Managing risk is the most important

    Managing risk is more important than winning trades.
    Assume you have a proven trading strategy that yields a 50%-win rate. How many trades would you need to sustain this win rate?
    • 10 trades, you can expect to lose 5 times
    • 20 trades, you can expect to lose 10 times
    • 2 trades, you can expect to lose 1 trade

    Let’s assume that you take on 3% risk per trade and you started to lose 5 trades in a row with your system. You are still trading correctly. But at 3% risk with a $10,000, you will experience a drawdown close to 15 percent by the end of 5 consecutive losses. Even if you can make it back with the next 5 trades, this drawdown may take a mental toll on you.


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    This is why a low-risk approach is possibly more manageable regardless of the strategy you have. No trading strategy is 100%. (Unless you are doing arbitrage)

    Personally, I take on a less than 1% risk per trade, until I have some buffer. If you review my trading records. you can see that I scale my risk according to my account size and I kept these well within 1%.

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    Hopefully, this brief explanation of risk management will help you.


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