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Hello, everyone.
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We'll be discussing risk management and the importance of risk management.
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Risk management is the most important thing while trading and investing in the financial markets, managing
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risk is the top priority of every trader and investor in the financial markets.
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There is a famous quote by American financier and a business tycoon and trading and investing.
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It's not about how much you make, but how much you don't lose.
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It's a billion dollar quote by one of the legendary philanthropist and investor.
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So what is the risk management?
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I'll give you a question right now, but let's assume you're crossing a deep river and you don't know
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how to swim.
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And you got two boats.
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Both number eight has a life jacket and boat number B has no life jacket.
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I'll give you five seconds.
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What would be your choice, A or B?
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So obviously, it would be the one with lifejacket.
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So this is how risk management saves us when we face a series of loss and drawdown in managing the risk
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is the most important thing in.
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This is the same as the boat which I have given you the example when the boat sinks.
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The only thing which gives us is our life jacket.
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Same is the case with risk management.
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Now, before going to the implementation phase, I would like to tell you how much you should risk.
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Most traders and investors in the financial markets are comfortable risking one to two percent of the
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capital, one to two percent risk per trade is the baseline to start with.
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I would recommend every trader to start with one to two percent risk, but trade off the capital in
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the initial stages.
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Later on, when you are having consistent wins throughout the month, you should increase your risk
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slowly and gradually.
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One to two percent should be strict risk management.
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In the start, I would not suggest to risk more than one to two percent during the start for an experienced
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trader.
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Even I have professional trader friends who only risk one to two percent trade, and that's a sign of
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a professional trader.
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So I would encourage everyone to choose one to two percent risk by trade off the capital.
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Managing risk removes all our stress from trading.
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No, what is the risk to reward ratio?
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Risk to reward ratio is commonly known as R ratio.
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Here, the R reflects how much risk a trader is taking on a trade to reach a certain reward.
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I'll explain in the next page.
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Now let's implement the risk management.
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Let's assume we have a portfolio size of six thousand US dollars.
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We are only receiving two percent of our portfolio, which is one twenty dollars.
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Two percent of six thousand dollars is one twenty dollars and we are only taking trades with three are.
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But I've explained this previously are means risk to reward.
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Here we are risking 120 dollars for 360 dollars of profit expected profit.
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If the take profit hits is 360 dollars.
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If you take a trade with two percent risk of this current portfolio with three risk to reward ratio.
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So our expected profit, if our take profit hits is 360 dollars and our expected loss if our stop loss
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gets hit would be one twenty dollars.
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So let's see if we win fifteen trades and lose fifteen trades, our total loss would be 120 dollars
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multiplied by fifteen is equal to eighteen hundred dollars and our total profit would be 360 dollars
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multiplied by fifteen is equal to five thousand four hundred dollars.
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Hence what do we have in the final outcome.
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Five thousand four hundred dollars minus eighteen hundred dollars thirty six hundred dollars.
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We are still in profits.
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So that 60 percent gain of our portfolio, which is absolutely phenomenal.
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This is the power of low risk and high reward systems.
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Let me give you another example.
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So now let's suppose you're an average trader and you find it difficult to find a three hour trade.
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Let's try it two to one risk to reward systems on the same amount.
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So what happens after 30 trades with 50 percent accuracy?
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Our portfolio size is the same of six thousand U.S. dollars.
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We would risk two percent of the portfolio, which is 120 dollars are expected profit if take profit
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hits would be to forty dollars an hour.
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Expected loss if our stop loss gets hit would be 120 US dollars.
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So after 30 trades with 50 percent accuracy, we want 15 trades and we lost 15 trades.
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So simple basic math, 15 multiplied by 240 equals to thirty six hundred dollars and fifteen multiplied
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by one twenty dollars equals to eighteen hundred dollars.
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So we would subtract these two.
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Hence the final outcome for us would be eighteen hundred US dollars.
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So we are still in the profits even after losing 15 trades and we want 15 trades.
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So this is the power of risk management.
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Never good for the trades that have high risk and low rewards, we are here for trading.
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We are not here for gambling.
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Our main job as a professional trader is to manage risk, always risk one to two percent of the portfolio
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portrayed in the beginning.
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Consistency and patience is the key to success, grace and what all these social media and Instagram
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gurus who are showing you a fake persona of trading on these social media gurus have planted a desire
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of get rich quick scheme.
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In your mind, there is no such thing, including everything is fake.
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Trading is a career which is based upon patience, discipline, persistence and consistency.
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These things are the key to success.
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There is no point of trying fancy lines on the chart unless you have money to trade.
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So that is why risk management is the key to success.
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I have seen a lot of newbie traders who have blown and wiped out their trading accounts within the first
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couple of days because lack of risk management and not taking good trades like low risk and high reward
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setups in this building.
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I have given you the example of three to one risk to the world ratio and two to one.
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Now imagine if you take trades with one to one risk to reward ratio by winning 15 and losing 15 trades,
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you would make no money.
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All of your time and efforts would be wasted and you would be in some reduction due to the exchange
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and trading fees.
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So that is why I always go for low risk and high reward setups.
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I hope this video was full of information and you have completely understood and understand the risk.
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I hope.
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I hope.
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I hope you.
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I hope this will use what I hope this video was full of information you have completely understood and
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understand how to how to how.
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I hope.
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I hope this video was full of information and you have completely understood how to manage risk and
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act as a professional trader and what to do and what not to do during your trading journey.
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I hope you have enjoyed the video and you have learned.
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Thank you, everyone.
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Let's move on to our next picture.
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