Risk Management (lesson23)

Now we will talk about Risk Management.
Risk management is much more than how much money you risk on each trade, it's the big picture for you entire trading business.
For example: if you sit on your trading desk and you are ill or hungover or stressed about something it will impact your mental and emotional performance before you even turn screens on you have increased a risk of losing money.
Risk management also means your knowledge, skill, and experience because these things will help to make better decisions and you will become more consistent trader.ž

The more knowledge and skill you develop the better equipped you will be in the long run and the same thing goes the more attention you pay to every little area you are going to focus on in this section.

Risk management has to become the unconscious habit you have to apply in every single aspect in trading business.
If you ignore it then all skill you have learned will be irrelevant because you will not be protected from losses that can kill your account.
You need to learn when to trade and when not to trade.
You will be consistently profitable when you have mastered the art of conducting analysis and selecting trade in conjunction being tuned into a market and realizing when it's the best to stay out.
Profit protection is knowing when to trade and when not to trade.

We will break risk management into 4 sections that directly impact your business and look how we can improve them.
These sections are your shields.
Limiting money you can lose on a trade is a great shield to have up but there are other shields that will protect you.
When we have all shield up we have maximum protection, and your business is safe.
When you lower the shields your business becomes more exposed and you have the high risk of failure.

The biggest reason traders lose everything is when they lower risk management shields or fail to build them in the first place.
The first thing you need to have is a goal if you don't know why you want to be a trader you need to take some time and seriously consider this before going further.
If you have a goal we can work to those desires.

The first area of risk management is Money Management.
Managing your money is critical in your life, especially in trading.
The concept of money management is driven by the principle of never losing all of your money on 1 trade, and always be in the position to trade next day.
Never risk more money then you can afford to lose.
We will talk about leverage.
Leverage is simply trading with more money than you actually have in your account.
We also look at how professional trader don't just use leverage in the markets on every single trade without a lot of pre-planing and thought.
There are traders that make hundreds of thousands of dollars each day on trading floors by using leverage but I can guarantee trades they take are not just mindless ones and due to boredom.
They are very carefully planed and excecuted using leverage to maximise gains.

The more leverage you use the harder will be to maintain conviction and clear thought trying to implement trade management strategy.
You need to have very strick risk management plan to ensure you are never overleveraged on your account.
Most professionals rank each trade based on their conviction, any trade less then 7/10 conviction is low quality while over 8/10 is the high quality trade.
Only apply higher leverage to trade that has conviction above 8/10.

Next section is Trade Management.
Each trade needs to be executed according to a plan.
There are several strategies that traders including myself use to manage trades.
The first concept is using a stop loss.
A stop loss is ordering a market that you set where you want to get out of the trade in an event that it goes against you.
Hard stops should be placed on all trades that you enter.
When we say hard to stop that means fixed order that will automate get triggered if the price hit certain level against you.
You also need to give a trading room to breathe, my advice using the stop loss of 40 pips.
We use average range we learned in technical analysis for our stops.
We use around 50% of daily range.
Always use you stop loss.
If there is a strong trend in the market look to enter multiple positions, add to your profitable positions. Never add to losing positions.
Entries and exits are also vital, your entry will determine how much drawdown will you suffer and it will give you much clearer picture how your trade will play out.
If you trade from high probability level then you must expect an imidiate reaction to price much quicker if your analysis is correct.
Your exits are also important because if you are not taking profits it does matter how good your trade is you will lose money, same goes if you take profit too quickly.
For taking profits use strong technical levels where price already reacted in past.
I usually never have take profits because I run my positions for months, wich is tens of thousand of pips in profit, so I advise you to do the same.

Don't scalp the markets switch to higher timeframes weekly, daily, 4 hours.
40 pips stop loss - unlimited reward.

Next, we focus on Self-Management.
This is all about managing youself as a trader and a person so you can operate in maximum eficency
This section relates to trading pscichology, and it is very important.
Trading is not easy, it is a skill as any other and trading professsionaly is just like any other profession , you need quality, credible training that takes time and dedication, so read this course properly and dont jump from one section to another without reading all information with understanding.
Self mamangement is important because you need to be aware of your state and structured process for reachiing your best performace state.
You need to be trading in the zone (you will learn this in trading psychology).
Trading in the wrong state you are increasing odds of losing money, you need to be self-aware all time, knowing what you should be focusing on to improve your trading performance and finally implementing knowledge.

The final section is Trading Environment.
This will of corse have an impact on your overall performance wich, in turn, can increase a risk of losing money.
You need to be able to focus on the market and tune into whats going on.
This means your desk is always clear, your office or your room is always clean and there are no dictractions that make you lose focus.
I recommend you to have at least 2 screens for your trading station so you can keep up with everything.
To many monitors can make information overload so it isn't productive.
The standard desk is 3 screens - one for charts, second for live news feed and audio squaw and third for research.
This will increase your performance.