What is Risk Management in trading?

If you are a high-stakes player and a lucky one, this article is not applicable to you, because you are a passionate warrior. Risk Management does not belong to you; for long-term traders, it is very important to have the ability to manage funds.
Based on the recent discovery that many brothers and sisters are opening positions with passion and their self-assumed direction, rolling their positions at high levels and ruthlessly cutting losses at low levels. This is not advisable!
1. What is a Risk Management Plan.
Before trading, take a look at how much capital you have? How much risk are you willing to take on each trade? This needs to be planned in advance. The proportion of risk generally depends on your capital and your ability to make money off the market.
Funding Risk Management Plan:
For example, if your invested capital is 50,000 and the off-exchange income is 10,000 per month, then the monthly risk plan should not exceed 2,000, which is less than 20% of the off-exchange income and 4% of the total capital. This ensures that in the case of exceptionally bad luck, with consecutive wrong trades, the account loss does not affect future operations. For professional traders, the risk per trade should be controlled within 2%, and monthly trading losses should not exceed 10%. If it exceeds, force yourself to take a break and reflect on your operations for the month.
Psychological Risk Management Plan:
Trading is a mechanical action, while humans are inherently emotional beings. Therefore, I believe that the risk management plan for psychological endurance is the most important. If you have 50,000 in the market and a stop-loss of 2,000 is not acceptable for you, then you need to create a plan that suits your psychological endurance.
2. Profit and Loss Ratio
Trading is not a prediction nor a goal driven by passion; it is a probability of risk-reward ratio. Each trade's entry and exit, along with stop-loss and take-profit, must have a proper plan; that is trading.
Here is an example:
Yesterday, I told my friends to enter the market and go long on BTC, based on the breakout at 25700. The stop loss is set at 25400, and the first take profit target is 26400, giving a risk-reward ratio of 1:3. Here, we will reduce our position with a second target near 28000, where the risk-reward ratio is 1:5. Use the funds that can withstand the stop loss at 25400 for this plan.
3. Trend and Take Profit Target
Why are profit-taking targets and trends part of Risk Management?
Trading is not a guaranteed win signal; strictly executing your profit-taking plan is the core of your stable profitability.
Trends always start from smaller time frames, with different cycles and different targets. The trades that emerge from small cycles into larger trends are gradually scaled down, letting profits fly. I can definitely hold on to them.
The profit-taking targets of 1:2 and 1:3 are both for reducing positions. When the target level is not visible, reduce positions according to the ratio, which just means earning a little less. After all, everyone's understanding of the market is different.
IV. Subtraction of Transactions
When you achieve a certain profit in the market, it's never wrong to appropriately withdraw your principal. There are many opportunities in the market, and as long as you are alive, there is hope for getting rich.
A Must-Read Guide for Beginners
Pay attention, don't get lost! #交易风险管理 #5月CPI 数据将公布