Learn Day Trading: Is your risk relative & why it really matters!

What we commonly see with a lot of new and developing traders is disproportionate risk-taking and not fully understanding the very basic maths of what they’re doing. Most newer traders want to turn their $100 into $1 million-plus with minimum work and as fast as possible. This urgency to achieve this usually entails disproportionate risk-taking and ending in, not surprisingly, failure.

Trading, if you haven’t already spotted, is simply a probability game. It’s about positive expectancy and for your edge to work and become clear there needs to be a lot of occurrences (‘trades’). Only then can we see if the maths of your strategy actually works.

 

If you're risking everything you have on one or two trades even with the best thesis in the world, there is absolutely no chance of that edge having the ability to appear. Overly basic to understand but yet so few implement. This may be one of the main reasons for such a high retail failure rate.

Its therefore critical that you know your risk per trade based on the timeframe, range, and setup before you even place a trade. This enables you to keep the risk relative from trade to trade ensuring that you don’t risk disproportionately on a single or a few trades. Remember as a trader risk is one of the very few things we can control.

 

You may have done this yourself and had 9 great trades and then wiped all your profit out with 1 poor trade. Implementing this simple but yet powerful principle of keeping your risk relative will give you a fighting chance to ensure the maths is always on your side.


Always start and work everything back from your risk through managing your size. If its a high-risk setup in a high volatility environment like out of the gate you may want to use ⅓ or half of your normal size per trade to ensure that risk is relative.


Remember we can’t control the outcome of a single trade but we can control our risk ensuring its relative to all of our other trades.

Happy Trading!

 

Updated 07/12/2020

Please Note: We can NOT accept any US or Canadian based traders, this restriction is based on their location rather than their nationality.




 




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