A must-read for traders: Risk and money management!

The main reasons why traders fail are lack of any risk management and abuse of leverage.

Your goal is to become a professional trader. That is, you may manage 1 million or 10 million yuan of funds in the future. If you have 10 million yuan now, will you still use your current trading strategy?

Remember your an excellent trader

A good trader is one who protects capital > optimizes profits.

Good traders are risk averse, which means they will not participate even if the risk of zero is 0.001%.

As a trader, what percentage of your total capital do you risk on each trade?

Some people would say 10%.

But as time goes by, you will definitely encounter consecutive stop losses, maybe 7, 8 or even 10 times. If you use 10% of your account to trade each time, then once you encounter such a situation, you will be no different from a liquidation.

So my recommendation is 1-3% per trade.

And if you have a loss on the same day, you should set a circuit breaker for yourself, that is, when you are over trading, you will not hurt your foundation.

How to tell if a trader is good or not. Observe his capital curve and what happens when he retreats. In mathematics, losing 50 out of 100 and earning 100 out of 50 are two different things.

Therefore, recovering losses is much more difficult than causing losses.

Have you noticed that once your losses exceed 20%, the difficulty of making them back increases exponentially.

30% is the red line. If you lose 10 times in a row and each loss exceeds 5%, then your risk control is very dangerous.

So your trade should end in one of four ways:

1. A small victory

2. A big win

3. Small losses

4. Balance of payments

Remove the big losses from your trading system so that you can continue to trade for years to come.

If you can’t manage risk in a “small” account, you can’t manage risk in a “big” account

Habits are formed step by step. The habits of doing things carelessly in small accounts will one day be reflected in large accounts.

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