Why Risk Management is so important and should be respected by you as well.
If you enter into a $100 trade and lose 15%, you’re down to $85.
If you make 15% profit on your next trade, you will have $97,75.
It’s always harder to recover losses than to preserve funds. Don’t think how much you can make on a trade. Think of how much you can lose on a trade.
For that exact reason we are only using tight Stop Losses.
If you are trading on a margin exchange it is also really important to not over-leverage. You should be always aware of your account risk and your potential account loss in case a Stop Loss hits.
Our recommended buy-in and leverage is usually below 2%, more like 1% – 1.5%.
We build our own tracking sheet which calculates that for you. You can find an example below:
As you can see, we are only risking -0.91% on each trade. So in case a Stop Loss hits we are only losing -0.91% of our total account balance.
This entire calculation is based on percentage values which means its adoptable to any account balance.
TLDR: It’s necessary to have very strict rules on risk management that help you to always preserve your capital without taking crazy risks.