Hello Traders , Today’s topic is probably the most important about trading.
One thing is sure, you can have a good system, a good psychology but if you don’t have a good risk management process, you won’t go far. Having a proper risk management process is game changer.
With the improper risk management, few loses can take you out of the game. That’s what actually happened the first time we blew our accounts.
In trading AFTER SEVERAL YEARS we realized something: we make money by surviving .
What is the number one killer in trading ?
Improper Risk Management.
That is the number one killer for most traders. In fact, they open a position size much larger than they can handle or much larger than what is appropriate for their account size. We all have been there.
At some point, before you execute a trade you set a big lot size, you open a position size and the first idea that comes to your mind is: If I win this trade I will make xxx amount. Well Just after that that trade end up loser and you’ve lost an amount that just put you in a heavy drawdown situation.
We advise you to do the experiment in a account with money that you can afford to lose.
Open a improper lot size trade and see how hard it becomes to let it run. Every single market information will trigger euphoric or fear messages to your brain. Every new candle printed will be perceived as a threat either if you win or lose.
We also advise to do the opposite. Open a small lot size that usual. You will feel the calm estate of mind.
In this post we are going to teach you to become a risk manager.
There is only Two things to follow. If you do it, your mind will eventually follow your actions and that is going to bring you realistic and proper results.
Number 1: Proper lot size (Position Size)
A trader’s position size is a very sensitive and very personal topic.
As I explained, it should be not too small and not too large.
You should find a proper balance between the two.
If you find your personal proper lot size, you will be able to trade fearlessly and have flawless executions. You will thanks us later.
The proper position sizes will allow you as a trader to not only set, but to also forget and move on with life without being tied to a screen or a simple M5 candle wick.
This is a very personal topic because every trader is different.
Anyway if you already know us you know the real value that we share that’s why I’m posting the following Image:
of course if you want to really learn more in deep about risk management you can order our ebook.
We have a combined experience of more than 6 years of trading and we had to suffer a lot at the beginning. Today we can have a series of losing trades and even continue winning. We are great risk managers.
There is a misconception in the retail industry. Most of traders are more worried about win rate and how many winning trades do we execute. Let us tell you that is not about how many trades we win and lose. It is about how much we lose when we are wrong and how much we make when we are right. This is another topic ( Risk reward law) to explain but anyway if you already have the chance to read our ebook you will understand.
The most elite traders on the planet allow time, money, and the market to do most of the heavy lifting and they give very little time to execute. Executing should be effortless.
Compared to the average retail trader gambling and clicking every 2 hours.
in this game “less” is “more”.
Less time, less pairs, less complexity etc… trading is a confidence game and in order to be ready to execute properly you must have a calm estate of mind that is directly correlated to your risk management and so your position size.
When you have a big lot size ( trading big) you will have anxiety, you will become quickly influenced by any market information either in your favor or against you.
On the opposite side, when you trade too small, you will get bored very very quickly.
The ideal position size is the one that allows you to accept it and move forward no matter the outcome.
Number 2: Managing the exposure Like a pro
If you cannot manage your exposure efficiently, then you will eventually have nothing left to manage. Just like that.
You have only two things to focus on: Exposure per idea and total exposure.
Total Exposure, or risk, is the currency value exposed to any potential loss of all your open trades. The management of your exposure ranks above everything else in trading.
Markets are absolutely abundant. Opportunities comes and goes. you have more than 24 pairs to trade. You don’t need to trade them all.
In our private channel, we diversify our shared ideas. even if the other setups are right and our customers thanks us for that we must understand that correlation is real. Flow come and goes.
You must have a smart total exposure diversified. We are not going to explain you in detail how but you will find all that information in our ebook.
In a very but very simple way:
You don’t even need to open for exemple a sell in AUDUSD, sell in EURUSD , and sell in NZDUSD at the same time. You are just blindly multiplying the chances to fail x3. Positive correlation will kick you out. You are betting in the same direction in 3 different pairs so if for any fundamental reason it fails, you will end up in a very bad situation.
If you Just stick to one pair and you stack it properly or you diversify you will have a smart risk exposure.
It is crucial to manage your exposure like a professional. You do not need to increase your total exposure in order to make more money. In fact, those who falsely believe they can make more by risking more and by executing more will be very surprised when they realize they will end up making less, not more. Forcing will give you the opposite expected results.
How to have a proper exposure per trade ?
Simply calculate it, then accept it ( hardest one) and move forward.
Step 1: calculate your exposure per trade and then your total exposure.
Step 2: the acceptance of your exposure is a different and separate step, and it is a psychological step.
There is only two ways to have a proper exposure.
Either you define a fixed amount of money per trade or you fix a % per trade.
If you want to chose a fixed % be aware that every trade idea will have a different lot size.
I personally know in average my stop loss size and my pairs. I’ve been trading for years. That experience allows me to have fixed risks modeling. I execute almost the same lot size every time because I know how xxx amount is with 25 pips using for example 0.1 , 0.10 or 1 lot… Of course that doesn’t mean having a fixed stop loss size. The market defines my stop loss size. But I define my risk modeling.
At some point after compounding accounts with almost the same lot size of course I increase my lot sizes but I always try to execute the same lot size ( this is personal) there is nothing wrong to stick to a fixed % and execute different lot sizes. Do what really suits to you.
Finally accepting your exposure
Everyone calculate their lot size and exposure. At least if you are reading this, I expect you to build your arsenal with the proper risk mangement weapons. find proper trading education. either because you absorb our knowledge or you decide to follow someone else.
Once you have that it’s a matter of psychology.
If you want to really become a risk manager you should change your neuro associations.
HERE’S FEW WISDOMS:
-
-
- DO NOT FOCUS ON HOW MUCH YOU CAN MAKE. FOCUS ON HOW MUCH YOU CAN LOSE.
- When having open trades ask yourself ? will I be confortable if by any reason all my trades goes wrong? If no then close few ones. If yes then you are probably applying our risk management concepts.
- Entry size is more important than entry price.
- It is not about how many trades you are right, it is more about how much you make when you are right and how much you lose when you are wrong.
- Risk management will have a direct impact in your risk acceptance.
- You are the only one responsible of your results.
- Pain + Reflection = PROGRESS
-
In summary
If you want to become a proper risk manager like us you must first have a predefined edge then you must realize how destructive can be to have self destructive risk management habits.
After that you should focus on finding YOUR OWN PERFECT LOT SIZE ( very personal step)
Once you have that in place you just need to manage your exposure per trade and total exposure.
After that, if you do it properly, risk acceptance will bring you the results you deserve.
We are teaching you to control your losers like a pro. See it as a company:
Controlling your expenses comes by using a proper risk management organisation.
Hope this post was helpful.
If you want to bring your trading to the next level just click below. The results talk by themselves.
AFX1 TEAM.
You must be logged in to post a comment.