Imagine there are two traders, Peter and kim.
They both start with a $1,000 account.
Peter is an aggressive trader and he risks $250 on each trade. Kim is a conservative trader and he risks $20 on each trade. Both adopt a trading strategy that wins 50% of the time with an average of 1:2 risk to reward. Over the next 8 trades, the outcomes are Lose Lose Lose Lose Win Win Win Win.
Here’s the outcome for Peter:
-$250 -$250 -$250 -$250 = BLOW UP
Here’s the outcome for Kim:
-$20 -$20 -$20 -$20 +$40 +$40 +$40 +$40 = +$80
Do you see the power of risk management? So here’s the deal: As a trader, you’ll encounter losses regularly. But with proper risk management, you can contain these losses till it feels like an “ant bite” 🍻
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Why?
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