Hey, everyone lead training with stocks Trade Tim bow and today we're going to be talking about mastering risk management which is really the key to success. Sustainable trading, success. And like I know risk management isn't really sexy, not really fun. Okay, but if you think about proper risk management, what you're doing is minimizing your losses and maximizing your gains.

and I know that sounds good. Okay, it sound oh yeah duh Tim Okay, but something that I always like to explain and and it's a thought experiment. Okay, but think about this. I call it the Rule of five and the Rule of five stipulates that let's say you trade five times a week.

you make one trade Monday Tuesday Wednesday Thursday Friday Okay and let's I'm I use Simple numbers because I'm an idiot and I don't screw up the math. Okay so let's say Monday you know you're you got a small account. That's probably why you're on the channel. you're new Monday You lose a hundred bucks sucks but losing's part of trading kept that law small.

Say you got you know, a $2,000 account or something Tuesday You lose 100 bucks Wednesday You lose 100 bucks Thursday You lose 100 bucks. not a good week. Okay, Friday You come in and you trade the kind of stocks that we trade that make exponential moves and you make 500 bucks now. I Want to be clear: it's very easy to do with the $2,000 account.

If you trade the right stocks now you'll say to yourself, wait a minute Tim I'm up a 100 bucks on the week. It's not about that hundred bucks. The point is explaining how risk management works. Listen, you're not trading day trading to make 100 bucks a week.

Okay, but the point is, think about that. The rule of five states that you just traded once a week or once a day and you had a 20% win rate. An abysmal win rate like no one would think you like before. I Made this point: if I asked you could you be green on the week with a 20% win rate I Have a feeling a significant majority of you would say no way.

There's no way you could be green on the week with a 20% win rate, but you could be Now the biggest point is understanding that that math only works if you keep those losses small. Okay, that's the point of this thought experiment cuz if one of those Monday Tuesday Wednesday or Thursday one of those becomes a $500 loss, you're hosed. Okay, because now you're down 900 bucks on the week. Or well, you know.

ex. Basically okay, which is crippling to your small account. So it is so important to keep your losses small even though you don't want to. And the biggest reason is that because you got to stay in the game.

Okay, if you blow up your account this week, it's all over. You give up, you pack up your stuff, you take your ball, and go home just like Cartman Okay, you got to maintain that slow growth path. Okay, now understand the psychology of risk. You have to get to the point where you understand your own psychology.

and I think journaling is so important to that talking with a trading Mentor talking with the trading buddy. Okay, um I just can't over emphasize that much because if if you can't recognize when you're being greedy, if you can't recognize when you're being fearful like listen I have been in terrible losing positions and literally just walked out like I just gave up because the fear was too great, the emotion was too great and I was like you know what this thing's going against me I'm gonna I'm gonna go outside and let the chips fall where they may. Is that a good decision making is is is that going to help you over time now? Fortunately, I've only done that a couple times, but one time it got exponentially worse. It was terrible.

lost doubled by the time I got back to the machine, the other one, it kind of went sideways and I was like okay I limped back home that day. But if you're making decisions like that where you're closing your eyes or you're closing your platform, that's fear. Okay, because you're too scared. You're too chicken to take that loss and admit that you're wrong vice versa.

You're in a big winner. Got this big winner going for you, and now all of a sudden you start getting greedy like you bought a stock at a dollar and your goal was a buck 50 and it spikes to two. and now you start thinking about three. Maybe this can go to four.

Okay, your original plan was a buck 50. now you're not selling it too. And then all of a sudden they do some intraday offering and it drops to 90 cents. And now you have a losing trade.

that's greed. Okay, stick to your plan. Good decision- making is rewarded over time. Next thing is know you have to always have a stop and that needs to be prep.

uh, prepared before you enter the trade. Okay, if you're buying a stock or shorting a stock and then figuring out what you're going to do, if it goes against you, you've already failed, you've lost. and I don't care if you make money like if you enter, especially volatile stocks. Like listen, if you buy some Apple with no stop loss I Still don't like it, But fine.

it's freaking Apple Okay, what's the worst going to happen? It's down one % tomorrow. But if you're trading these volatile stocks without a stop loss predetermined before you enter. What you're going to do is you're going to get wishy-washy you're going to overstay, and you're going to completely screw it up. And also it's terrible decision-making It's terrible planning, and it's terrible discipline.

and the market will punish you for bad discipline. The market hates it. it will bring down the fiery wrath of God upon you for terrible discipline and terrible, uh, decision making it. Go punish you and you will be punished until you redeem yourself by making good decisions.

Next thing is precision sizing. Um, there's a lot of good calculators out there. but one of the biggest things that I recommend is you have to have a loss. in a from a dollar amount perspective.

that is your you know your ejection handle. Okay um because a lot of these stocks move fast and you can start justifying. You can start doubling down and doing stuff like that. You always just have a have have a fail safe like maybe your plan is again.

I'm I'm buying it a buck 50 I'm stopping out at a buck 25 and it pulls back hard. but there is a level where it is a absolute dead stop. and the reason that's so important is that keeps you from crippling losses. Remember, if you take a huge loss, it can take you months simply to get back to where you were today.

like like you like today. I got 5,200 in my trading account and I lose 1,500 bucks today. It could take me six months of hard work and now it's December we're recording in July it's now December and I'm back at 5200. I Just worked for six months just to get back to where I was today.

It sucks. It really sucks. Don't do it. Okay, stick to that hard stop.

Next thing you do is diversification. Then the way I diversify is day trading and swing trading. Okay, um, huge fan of day trading. but what is awesome about swing trading, especially for your part-time Traders You don't have to look at these stocks every single second of the day and you can have that portfolio of wild movers that you're in and out of quickly.

And then you also have that diversification of the slower movers that you don't have to micromanage and then also reach out beyond that. I mean listen, if you're if you're doing well in your trading, you know, buy some treasuries. I mean I'm not sure if you've seen I mean 5 6% You know. Even there's interest savings accounts which is crazy like 5% Okay, don't be afraid to take your profits and put them elsewhere.

Me: for years real estate. um actually sold off all of my rental properties through the 2020 Boom. Top tick that baby. But anyway, um for years and years and years I was buying rental properties, bought some Farmland bought some hunting land.

Great way to diversify yourself. Now I Know most of you are probably like Tim I got 2,000 bucks in my account but be Forward Thinking and nothing wrong with taking a couple hundred bucks out and putting in some treasuries. Safe, good interest tax deductible. so next thing is always understand how to modify your risk management based on the overall: Market If there is a hot setup that is just absolutely working like high percentage Point Don't be afraid to amp that size up.

now. Make sure you're doing it for the right reason. Okay, risk management is exactly that. If your trading is going really well like you're just crushing it and you're seeing the market, you know we.

We'll talk about that. Like, like you're seeing through the Matrix scale up your size. Don't don't be afraid to get aggressive, vice versa. Understand that if you're struggling, scale back that size Like that's a thing that so many people mess up.

They add more size and they trade more. When things aren't going well and then things start going well, they actually do less. Focus I Call it the hot hand Theory Okay, like if Jimmy is five for five on the basketball court, what do you do? You get him the ball I Don't care if he's double covered, he's five for five. Man, get him the ball.

Where if I'm 0 for five like I or Joey is 0 for five. if I'm the coach I'm like you pass him that ball, you're on the bench. Okay, he's stone cold. so focus on the hot hand.

Theory Dial up your risk and dial up your size when things are working. Scale it back when things aren't working until you get your confidence back learning from your mistakes. Hey, we've all taken big losses. Okay, we've all gone on streaks of terrible decision making.

and I know I'm one of I Harp on this and harp on this. You probably heard many videos on this: I Truly do not think that you will ever figure out your own psychology without journaling and sitting down at the end of the day or the end of the week and reviewing what you went over. and I get push back on this all the time. I'm you don't by Friday night if you're actively day trading.

If by Friday Friday night, you have barely any recollection of what you did on Monday or Tuesday you might be like oh, I think I traded. You know pltr or was that Wednesday and you know and I'm telling you, you have to do it. No one likes doing it, but it's the work that rewards you over time. Next thing you do is use uh, resources and software to manage your risk.

I Talked about position size calculators. You can just Google position siiz calculators type in a bunch of numbers and then that way it will guide you through. You know good levels. Okay, if I'm risking 10 and I'm gaining three 30, you know it can actually give you a good way to kind of do that and ingrain that process in your brain.

Eventually, you'll do it on the Fly pretty much all day. Traders Do. but I Think that using those tools to map out uh, risk management and losses as well as targeting gains is a great way to kind of build a good process. So that being said, my friends, if there is one thing thing that will make you a consistently profitable Trader over the long term is risk management.

Listen, So much is important: Knowing chart patterns, knowing SEC filings knowing uh uh uh, The fundamentals: Knowing what the hot sector is, Knowing technical analysis, Knowing vwap, Knowing the Oracle levels. Okay, all of these things are important. but if you don't manage your risk and you routinely take bigger losses than your wins, all of that stuff you could throw it out the window cuz none of your mumbo jumbo with technical analysis or or indicators or chart patterns or any of this matters is if every time you trade you overstay, you don't have a stop and you take a bigger loss than you intended. None of it.

Else Matters Only risk management matters over time. Do it or don't It's kind of your choice blow up or not you and and at at some point like a lot of people ask me, the I keep losing I keep losing or I I keep taking big losses I Tim how do I stop it I'm like listen, you got two options at some point This is what I went through I just I'm like I'm done I will not do this anymore I will not stay in a stock that I said I was going to stop out of I'm done I'm not doing it anymore or you blow up you choose. That being said, everyone check out the uh, Daily Income Trader system. We'll drop a link below.

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