Risk Management and Day Trading I Promise you this is going to be the most important video ever on my channel, especially if you're serious about becoming a profitable Trader The most difficult part in trading is not necessarily making money, but keeping your profit. True story though, I was in a really bad trade trying to Long PDD because it flushed down really quickly to daily support and guess what? I got dumped faster than my ex-husband dumped me. So this is the stock in question PDD you can see at the opening flash jump from 49 here all the way down to 46.45 and near the lows at 39 at 10 30. So I was in about a thousand shares.

So this trade I could have lost ten thousand dollars, but luckily I had this one crucial component to my trading strategy which is risk management. So when the stock dropped to 45, 60s, 45, 70s I stopped out for a loss. So at 1 000 shares I lost about a thousand dollars which is about one percent of my account size and then in the next trade I repeated the same strategy, risking one percent of my capital and made a decent two thousand dollars on Baba 2009 PDD Shorts three thousand dollars on Nvidia which are around two to three times a while. planned to risk on all these trades.

If you want to learn how I managed to do that, pay attention to this video as I'm about to explain my risk management strategy in three steps. Also, please remember to smash the like button right now if you want to receive a free crash course on my risk management trading strategy. I'll tell you more about that later on. Risk management is a foundation in day trading.

If you don't manage your risk, you never become profitable, especially if you have a small account. Let's be real here. No one can predict whether a stock is going to go up or down with 100 certainty at any given time. But if you can though, call me first.

Therefore, as Traders we can never truly control how much profit we make, as we can only profit from what the market gives us, but we can definitely control how much money we lose. This leads us to the first step of risk Management for Traders Understanding the power of Risk Reward ratio. So I'm gonna show you the example of setting a proper risk award ratio according to account size on the spreadsheet over here. So let's say I have a ten thousand dollars account.

Capital You should be risking about one percent maximum per trade. so if I am have ten thousand dollars my the one percent will be a hundred dollars for each trade. I'm risking one hundred dollars. However, if you're a little bit more conservative and you'd rather risk just one hundred dollars per day, you can do this as well.

So one hundred dollars is your your max risk for the day. But if you take three trades per day two trades per day, that's gonna vary your amount of risk per trade. So if I take two trades per day. So for each trade, I'm allowed to risk fifty dollars.

So whichever method you use, that's fine. but make sure you stick with it your max risk per trade or your max risk per day divided by the number of Trades you take on the day. So have that figure in mind because this risk amount is gonna be kept constant to the best of your ability as a Trader for every single trade that you take. So now that we understand the fixed risk per trade concept, let's look at risk of word over here.

So I'm using the same ten thousand dollars account Capital I'm still risking one percent of my uh account size per trade. Now let's look at risk award Now if I have a risk of a ratio of one to one meaning that when I make money I make a hundred dollars and when I lose I lose a hundred. let's see what happens if I have a 50 win rate. Meaning for every 10 trades I make money on 5 out of ten.

So if I'm making money on these five trades, 50 win rate and then lose money on the other five and pretty much break even. Now this is without considering commissions or your platform costs. So essentially you're red. If you're a risky, word is one to one and you have a 50 win rate.

Now 50 win rate. is really optimistic. for new Traders I would say for most new Traders your win rate is probably 40 or less. So that's a reason most new Traders and most you know Traders Struggling.

They are unprofitable because they are risking the same amount as they are making. So that means first of all, they have trouble uh, managing their stops. or they have trouble with the right strategy to let the trade work out to maximize the winners. But we're gonna come back to that in a little bit.

Moving on to the second scenario, you can see we're still risking the same amount of 100 per trade, but now our risk award is slightly better. We're risking a hundred dollars to make 200.. So that means with 50 win rate. Yes, we can indeed become profitable at five hundred dollars.

Now, if we drop down to a win rate of only 40 percent, we are still profitable. So that means you are no longer relying on being right. you're relying on managing the proper risk. You lose a hundred dollars per trade.

But when you make money, when you are right, you are at least two times. Um, your reward is two times greater than your risk. So this is at least the minimum you should go for if you're a new Trader Remember, with only a forty percent win rate, you can still become profitable. But ideally we want to work towards 50 win rate.

and with a one to two risk award ratio. Now if you're trading a small account for your account to really see some substantial growth, you need to work on your risk over ratio of one to three or more. So in this bottom scenario here you can see we're still risking 100. but this person knows how to manage your risk so they only lose a hundred.

But when they make money, the profits are three times more. So when you make money, you make 300 300 for five trades out of ten. So fifty percent win rate you can become very profitable. You can see you're growing a thousand dollars on those 10 trades even with only fifty percent ring rate.

Now let's say I drop my win rate down to only forty percent. You can see I'm still profitable I'm still positive 600. let's say you know how about 30 percent? what would that look like look? Even with only 30 win rate, as long as I'm really good at maximizing my profit and reducing my risk to only a hundred dollars I Can still be profitable now, but with the magic really um, comes in is when you have a nicer win rate of around 60 on average for most Traders 60 to 70 win rate then you can become very profitable if you have a one to two risky word minimum, but ideally one two three. So if you're trading a smaller account of one thousand dollars, that means your risk should only be ten dollars.

If you're trading five thousand dollars, your risk should only be 50.. So you should not take a more risk than you should. This is the guideline that you should be looking at for all the trades you're taking in the next step. I'm gonna show you the step-by-step process of how to properly set your stop-loss area and take profit on your chart.

So you always get one to two or one to three Risk a word before we do so. I Want to remind you that you can now receive a free training and one of my favorite long strategies as well as risk management crash course in the link below. I'll be going over one of my favorite strategies in the market right now for buying stocks and how to find stocks to trade, especially my risk management strategies for that particular setup. So make sure to check out the link below.

So if you look at a daily chart on this gap down, this thing really didn't have any support from 60 52 down to 47. It didn't have support until about over here the 50 46 dollars here. So that's the reason I learned over here forty six dollars with a daily support area when I first loaned the stock. However I know that if I'm wrong I need to be able to get out because this thing has downside all the way down to 40.39 So downside is potentially another ten dollars to a downside.

So I obviously don't want to have to lose another. This is what? 29 40, 46 minus seven dollars. So I know that you know I want to keep my risk as close to 46 as I can. so that's the reason I kept it at V1 rejection over here.

Uh when I first loaned the stock at 46, you know it take down to 45 30 really quick and you just cannot reclaim back I'm not on a five minute chart I use the five minute Mv-wop over here I Always look at if the stock is able to reclaim over the key level 46 dollars over V web and to gauge with this, there's a potential reversal and the fact that it isn't. After this thing dumped to 45 small pop to 46, the fact that it just couldn't bounce, it cracked through the lower day. that's why I stopped out around 45 30s over here. So I lost.

You know, almost a thousand pretty much a thousand dollars on that trade on the 1000 shares. Um, so one thing, this thing cracks through the lower day. So pretty much I'm risking over here around 80 cents 90 cents with slippage. So that's amount of risk I took um on that particular trade for the long side but it's it's really good stop because if I didn't stop out they say next leg went all the way down to 41 and 39.

So what I did well is keeping my risk at a one percent Mark Stopping out when the stock breaks down the low over the day over here at 45 20s. So I got out of the long trade which I lost a thousand dollars some. Now let's talk about the shorts I took So after this thing dropped from 45 down to 42, you can see the small consolidation here on the five minute chart over here. Let me maximize a little bit.

a small small five minute consolidation a lot of Wicks on the top. Over here you can see five minutes Wicks on the top. and if you watch uh price action video you know that Wix on the top of the candlesticks means each push, each breakout, each bounce is sold into. So this is a bearish candle formation over here, so that's the reason I shorted it over here I have 42 50s over here for these 250s I showed it Now when I shoot the stock my risk is about V-wap area.

so around 4240 that's my entry. my V my risk is about a dollar over here. a dollar risk. um over here on the reclaim of this view up area.

so I will probably risk only up to 43 dollars up here. uh around this area. I Probably wouldn't want to risk a full one dollar per trade, but um, an 80 cent risk on this name. Downside: I Know from 40 to 40s entry, this thing has a potential of giving me all the way down to 39.

Why? Because that's a daily support area that we drew earlier from the daily chart, so that's a pretty decent, um, risky word. At least one to two. So I'm risking about 80 cents to make. uh, somebody do the math.

Here We Go Again 42 a few moments later. So if you think about it, I'm risk I'm Risk three Risk award So that's why this short on the on the short side for PDD was really worth it even though I just lost a thousand dollars on the long side up here. I Shorted it down here from 40 to 50s all the way down to 39. So to me, this, the second trade is a trade that's well worth it.

So here are the key takeaways for setting the proper stop: the risk area, your profit Target and the proper risk reward. So number one is to use the daily key levels from the daily support and resistance areas as your risk. Number two, use the upside, resistance or downside support as your daily profit areas. This is going to help you gauge your risky word to make sure when you risk a dollar, you're potentially going to make two dollars or three dollars, or even more.

And number three, make sure all of those key levels and daily support resistance areas are drunk out on your charts like our demonstration here before you enter the trade. Now step number three is knowing your strengths and weaknesses as a Trader and set proper rules for yourself. So I can teach you all about this risk management. Max Loss calculating your risk for your account Capital But none of that matters if you are not disciplined enough to follow it.

So that's why I Always suggest that all the Traders after having calculated your risky word like I did in this video, do that in paper trading first. Do that and apply it for all the strategies you're trading and track them in a proper trading journal. It is from there that you can see your risk award for all of your trades. Are you risking ten dollars to make ten dollars or ten dollars to make five dollars? I Hope not.

Um, but that's how you see your pro your actual risky word after all the executions and all the slippage. So you should really be tracking that. So that's number one. Number two is: write down a list of rules based on what you find in your trading journal.

Do you find that you start losing money after about 11? A.M or 12 p.m Market time. If so, then that means you should step back and stop trading after that. That's personally what I do because that's why I find for my trading journal I Start losing everything I Made on the day after about 11 30 a.m in the morning. So that's why I'm now really disciplined enough to stop trading.

I Also have another rule called the 30 rule meaning that if I find that I'm giving back around 30 of my profit on the day then I stopped trading. This is to prevent myself from over trading and outstaying my welcome and revenge trading. Try to make every single penny back because it's inevitable. Sometimes I'm good on the day I make some decent trades, I'm up a couple thousand dollars, then I become really bored and I'm disciplined and give back more than 30 percent or fifty percent.

So now I'm really conscious about my own emotions and on trading performance. If I give back more than 30 on a day, then I'm done because hopefully you've realized this by now watching this risk management video. The most difficult part in trading is not necessarily make making money, but keeping your profit. That's the hardest part in trading.

and that's where most Traders struggle the most. They make a hundred dollars here, two hundred dollars there, and they lose everything and more. So that's a reason. you should really have a list of rules that you follow.

and to stay disciplined, track all of your trades in your trading journal and truly understand how much money you should be risking for your account size. Once again, if you want to learn more about my risk management strategy, including one of my favorite long setups right now in the market, then you can get a free crash course in the link down below. If this risk management video helped you out, make sure to let me know in the comment section below. Thank you guys so much for watching! As always I'm the humble Trader and I'll see you guys next time.

Thank you.