John is the type of trader that likes to “go big or go home”
He risks 20% of his account on each trade and encountered these series of trades:
L L L L L W W L W W
Now, John’s account would look something like this:
-20% -20% -20% -20% = -100%
Clearly, before he can reach his 6th winning trade, he would already be wiped out.
He would blow up his trading account.
On the other hand…
Sally is a conservative trader.
She's more careful and applies proper risk management.
She plays good defense so she would only risk 1% on each trade.
So, Sally’s account would look something like this:
-1% -1% -1% -1% +2% +2% -1% +2% +2% = +2%
You can see That Sally had a positive outcome of 2% with a 1:2 risk to reward ratio.
Can you see the difference over here?
John is an aggressive trader who blew up his trading account with 20% risk per trade
Sally, on the other hand, risked only 1% on each trade and ended up with a net profit of +2%
Can you see the lesson I'm trying to bring across on how risk management would keep you through the tough times?
Risk management is what will help you survive your losing streak.
Risk management is what will make you still stand strong right even though the market conditions are unfavorable to you.
Because as I've just shared with you…
A profitable trading system without proper risk management will still cause you to lose in the long run.
Now the question is…
How do you put on your trades in such a way that when the trade hits your stop loss, you lose not more than 1% of your trading account?
Here’s the answer…