Wednesday July 27, 2022 - 15:26:15 GMT
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Attention Traders: Why You Need Risk Management.
One of the goals of any retail trader should be to preserve capital so you can live to trade another day. In other words, most traders have limited capital allocated for trading and if you lose it, you are out of the game.
This sounds like common sense but it is a basic tenet of trading that is rarely followed. If you don’t believe me answer the following question:
Have you ever spent days or even weeks trading profitably, building some equity in your account, only to see your gains wiped out with one trade where you took an excessive risk or just lost discipline?
If I polled traders with this question most, if not all, would have answered in the affirmative.
But old dogs can learn new tricks…
I have always thought in terms of pips rather than percentages when I trade. There was no clear plan. I would put on a trade, add a stop based on x number of pips I was willing to lose, and then book a profit at my discretion.
This all changed when I created The Amazing Trader (AT). Stops were placed above/below an AT line and other AT lines were used to set a profit target.
However, there was no risk management strategy on my part. My focus was just on looking for profitable trades.
Then my whole approach to trading changed. It is hard to imagine after all these years of trading I could evolve but this is, in fact, what has happened. The Amazing Trader added a structure to my trading by adding a risk management tool with a strategy that took it to a new level.
Here is how it works:
Set a default risk/reward ratio in the template for each trade (e.g. 1.25:1)
Using the built-in risk management tool and employing an AT strategy:
1) Place a stop above/below an AT line
2) Enter a trade (buy or sell)
3) Program will so the rest: Determines trade size and take profit that maintains default risk/reward ratio
In other words, you never risk more than your preset percentage of capital on any trade. Using this approach with a 1:25:1 default risk/rewards, as long as your win/loss is 50/50 or better, you will be a profitable trader and build equity in your account. The initial goal is to first prove to YOURSELF that you can trade profitably and then improve on 50/50 and/or 1.25:1 BUT with NEVER exceeding your default risk on any trade.
A word from The Amazing Trader creator…
I am just a trader and can only speak from personal experience. As I have said before. the best endorsement I can give is that I have been trading a long time and cannot trade without The Amazing Trader. Nothing is certain in this business but I am pretty sure that once you try AT you will feel the same way.
At a minimum, you will never blow all your profits on any single trade and thereby avoid a situation that plagues many traders. At best, you will have all you need to trade profitably (i.e. The Amazing Trader + its trading strategies) with a risk management tool to instill discipline with a clear strategy designed to build equity in your account.
Visit The Amazing Trader
Jay Meisler, creator
The Amazing Trader
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