Thread by @i_am_jackis

Yo, I'm back with this complex Risk Management thread that I feel so many people need yet so many do not know.

I also feel like this is maybe the most important thing you should study and apply right now. Way more important than any TA or FA.

From this very simple box below you can see how easy it is to lose capital if you risk too much but how hard it is to regain it back.

Therefore your main goal shouldn't be making money but protecting what you have. Then you can focus on making them.

Every person in the world sooner or later runs out of luck and experiences series of losing trades and some drawdown

It is inevitable

From the box below you can see how quickly it can disappear with risking 20% per trade/coin vs how you can retain a healthy amount by risking 2%

By risking 20% in ten trades you will be down 90% and will need 900% gains to make it all back just to break even.

By risking 2% even if you have bad luck and experience 10 losing trades, you'll "only" need 25% to make it back

I'm sure you are now beginning to see how this changes everything and your future approach as well.

Sure higher risk offers huge gains if right and sure you can get lucky here & there but in the long run you will lose it all eventually unless you are strict about risk.

Where you want to be the most careful is your starting line. Your base point. It's the psychological level of your mind w/e the number is.

Under it, you are in the mindset of "making it back"

Above you are in the "euphoric" phase.

Both are risky and hard to handle.

So taking it a step further when you start and risk 2% and endure a loss, you can cut it on the next one even more.

Now if you endure a streak of 10 losses you only need 10% to make it all back.

So why not take it even further and start with 1% and then cut it to 0,5%?

Yes yes, I know you are already saying but J this way I won't make any money.

No at first you will not. At first, you must look to protect yourself and get above the baseline.

Now let's use an example of a very doable 2,5R winning trade where you start again with 1% risk (2,5R - 2,5x risk-reward ratio - you win 2,5x more than u lose)

And let's say you get a winning streak of 4, you will be at 11K in just 4 trades! And 13K in ten trades. With 1% risk!

Now let's take it even further and hypothetically say you get a winning streak of 10 (which you won't).

But this time after you make 10% capital gain you up your risk to 2%.

You'll make 50% in just 10 trades.

And now that's where you start banking!

The problem most do is that they don't risk 20% of their current amount but they keep gambling the initial 2000$.

Eventually, they end up with the last 2000$ and decide to go ALL-IN. And we all know how that ends.

The important thing to realize is to start small and slowly build yourself up.

Then once you have a 1 000 000$. You'll only need to make 50% a year and you'll make 500 000$.

Now that changes everything right? But first, you must get there and for that, you gotta be disciplined.

I understand that most people are, have been, and always will be looking for shortcuts but then ask yourself how did it work out for most of them?

The truth is trading/investing can be very profitable but you must surround yourself with strict rules to survive in the long run.

I hope this helps you shift your trading career in the right direction

And as always please consider liking & sharing the thread. It costs nothing but helps your friends and other future people to learn. It also helps me to grow and by that, I can share more in the future 🤗