One very important concept in trading that’s overlooked by many traders is risk management, risk management is very important in trading it is required for all traders to have a risk management strategy implemented into the trading, stock. Now when most people started when I first started out, you know I would take all of my money and I would don’t really want to stop thinking hey I know what’s gonna go up or Hey, I know what’s gonna work in my favor.
But in reality, as I mentioned before, trading is all a probability game with probability, you always need to protect your downside, you always have a downside. So, knowing that you have to implement a risk management strategy. So in this video, I’m going to show you how to have position sizing. I’m going to show you how to take the proper risk management strategies and apply them to your trading and how to have a target on losing trades when she went to take more risks when taking less risk.
I’ve also implemented a calculator the calculator is listed down below. I’m going to walk you guys through a concept and how to use the position sizing and risk management tool. This tool. I personally believe every trader should implement into their trading.
I’m going to go over this calculator with you guys in a bit. Before I go over it, I want to go over, risk management and explain how we’re going to use this and how risk management is very, very important. All right, so most traders that start out, do not focus on risk management, they kind of stay away from managing risk on certain trades what most traders do is, as soon as they fund an account, let’s say.
Person A starts with $10,000, what most people do is they find stock ABC, and they go, Okay, I’m going to take the full 10 grand, and I am going to invest it in stock ABC. I’m going to buy a bunch of shares at five, and it’s going to go to 10, or it’s going to go to 20 and I’m going to make X amount of money, and what they don’t really focus on is obviously their downside, they don’t really protect their risk. Now, as I mentioned before trading is all a probability game. We have to protect our downside, and most beginners and most people not even beginners people that have been trading for some time. Keep doing this over and over again and what happens in the long run, is that these trades and of wiping people out. Now with that being said, as traders.
The most important thing we have is our capital. What we want to do is we want to protect this capital, basically your trading money. We want to protect this, we want to protect it as much as possible. We want to have certain strategies to make sure we are always protecting our downside, right, because once again trading is all probability game. We need to at all times protect our downside. Yes, looking at the upside is amazing, but the downside protected will help us a lot in the long run. Now protecting our capital comes in forms of risk management. So, in this video I’m going to show you guys how to manage risk.
amazing but the downside protective will help us a lot, long run. Now protecting our capital comes in forms of risk management. So, in this video I’m going to show you guys how to manage risk. I’m going to show you how to properly take on position sizing and how to properly. Find trades that make sense with ratios. All right, so let’s go back to the same example of $10,000. So let’s say you open up an account tomorrow, and you put in 10 grand. Now as you put 10 grand. The first thing you always want to do is you want to have a plan, knowing Hey, what is my risk management strategy, most risk management strategies, start out from one to 2%.
I’ll explain that 1% to 2%. Right. Now you can pick either or. That’s up to you. If you want to go with 1% you can go with that if you want to go with 2% you can go with that. But I don’t advise going higher than 2%. I think as a beginner you should focus on one, if not a maximum 2%. So now what is this one and 2% that I’m talking about. So, basically what this means is if you take on a trade, and you have an account of 10,000. You can only risk. 1% of your account. 1% of 10,000. That equals $100 on a trade few risk 2% of your account size. So if you risk 1% of 1000. That equals, $100 on a trade. If you risk 2%. That equals 200. Now, that means each trade you take if you follow the 1% rule, you can only risk $100. If you follow the 2% rule, you can only risk 200. Now for the people that are like wait Omar. That means I can only invest, $2,000 into a trade.