Risk Management is the answer

Risk management is obviously the avoidance of loss, through the act of playing it safe.

However if you have ever watched animals in the wild, their fear of death can often be the reason they are caught by predators. Many traders (myself included, when not in my right mind) will run to and fro like rabbits being chased. This is how coyotes get them to come out of their safe place under the sagebrush.

The lezzon: stick to your plan, and if you ever feel afraid, sometimes the best thing to do is sit in your safe space no matter how you feel.

One of the safest places a fish can be is in a giant school of other fish......
 
Have a play with this basic randomised calculator using different figures. I found that reducing risk to around 2%, having a risk:reward around 5 and having a win rate around 30% trumps higher win rates of around 70% whenever the risk:reward is reduced to around 1 as many start off with.
 
A very shrewd and famous world leader once declared "there are known knowns, known unknowns, and unknown unknowns."

And this latter type is the most dangerous.

Due diligence and diversification are one way to deal with gap risk. Because you never know..
 

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Master Pu said:
Have a play with this basic randomised calculator using different figures. I found that reducing risk to around 2%, having a risk:reward around 5 and having a win rate around 30% trumps higher win rates of around 70% whenever the risk:reward is reduced to around 1 as many start off with.
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this is a good calculation , thanks for your nice post
 
Some believe that having a stop in place constitutes risk management, but it is not as basic as that. Targets and position sizing are just as important. Up to now, I have always worked out my stop levels proportionally to my targets, my average R:R being around 4, my average win rate is 28%. I have previously tried to allocate 2-3% of trading capital per trade. Now I would like to make some changes to my risk management. I am leaning towards 10% risk (compounded) and whilst having a stop set based on an average price overshoot, and changing target from being predetermined level (1:4) to having targets to be determined by price action of the time frame that I trade (240 min). Once the price fails to break a certain level upon a second attempt, this will be my trigger to close and to potentially reverse the trade. Just to add, whilst 240 is my main time frame, I use price levels from Daily/Weekly/Monthly time frames and also use 1 min time frame to monitor price action around these levels.

P.S. I don't use indicators for trading decisions. I do glance at moving averages and MACD on higher time frames to monitor trends/confluence with price levels.
 
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