The Simpliest Math Behind Every Succesful Trader

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What exactly is risk management?

The ability to control your losses so that you do not lose all of your equity is referred to as risk management. This is a system that may be applied to everything that involves probabilities: trading, poker, blackjack, sports betting, and so on.

Many inexperienced traders underestimate the significance of risk management or don't understand the basics when it comes to risk management.

Would you risk $5,000 on every trade if you had a $10,000 trading account? Probably not. Because it only takes two consecutive losses in order to lose everything.

🧠 Now, let's imagine a thought experiment, in wich 🤩Alex and 🤨Peter are both traders with $10,000 in their accounts. Alex is a high-risk trader who puts $2500 risk on every trade. Peter is a cautious trader who puts $100 risk on every trade. Both apply a trading strategy that has a 50% success rate with an average risk-to-reward ratio of 1:2.

For good example, let's imagine the next 8 trades had the following results:
4 losing trades in a row
4 winning trades in a row

Here is the result for Alex: -$2,500, -$2,500, -$2,500, -$2,500 = -$10,000 Loss of the total account 😭😭😭😭
Here is the result for Peter: -$100, -$100, -$100, -$100, +$200, +$200, +$200, +$200 = +$800 Profits. 🏆 🏆 🏆 🏆

Can you tell the difference? See how risk management show the difference between being a profitable or losing trader. Peter managed to recover losing trades, and get into good profits after 8 trades. Alex didn't survive 4 trades...

🚨 You might have the finest trading strategy in the world, but if you don't manage how much you lose, you'll lose it all. It's only a matter of probability and time.
However, following this basic example will assist you to make your trading more profitable. Simply give it a shot.


Kind regards
Artem Crypto
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