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Market Mechanics Ep 21: Risk Management — Transcript

by Brad Goh (The Trading Geek) · 5,676 words · 899 segments · language en · Watch on YouTube

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0:00Risk management is a love letter to your
0:02future self.
0:04And you're the only one responsible for
0:06delivering it. When I say risk
0:08management is a love letter to your
0:10future self, what I mean is this.
0:13Every single time you protect your
0:15capital, every single time you keep your
0:17losses small, every single time you
0:19follow your trading rules, you are doing
0:21something today that your future self
0:24will thank you for.
0:26Because good risk management keeps you
0:28alive in the game. Just think about it.
0:31The only way to win the game is to have
0:34chips to play with. But if you run out
0:36of chips, you literally cannot continue
0:38playing the game.
0:40Good risk management does just that,
0:43right? It allows you to be alive in this
0:45game long enough so that you can win
0:48big, so that you can win consistently.
0:50It helps you preserve your capital, your
0:52confidence, and your ability to keep
0:54executing your edge.
0:56And the key here is nobody else is going
0:59to do that for you. Nobody is coming to
1:01save you. You're the only one who has to
1:03deliver it through your actions, your
1:05discipline, and your decisions in real
1:09time.
1:10Which is something that I always say to
1:12my students. Right? Because every
1:14everybody is thinking about how to get
1:15rich fast, how to make as much money as
1:17humanly possible in the shortest amount
1:18of time. I want to become a millionaire
1:20trader in 6 months. I want to buy the
1:22Lamborghini in a year from now.
1:25Buddy, the fastest way to blow up is to
1:28try to win faster.
1:30The fastest way to become profitable is
1:33to try to lose faster.
1:36Because in trading, the goal is not to
1:38avoid losses. The goal is to keep them
1:40small, controlled, and consistent long
1:44enough for your edge to play out.
1:47That's the holy grail right there. It's
1:49to survive in the game long enough for
1:52your edge to play out so that you can
1:54actually win, so that you can make money
1:55consistently.
1:57So, this lesson incredibly important,
2:00right? So, make sure you actually
2:02internalize these principles which I'm
2:04about to share with you and apply this
2:06risk management framework that I'm about
2:08to show you. All right. So, first of
2:10all, let's talk about risk management
2:11principles. These are like the golden
2:13laws, right? These are the golden rules,
2:15right? You have to follow these rules in
2:18order for you to really make sure that
2:19you
2:20manage your money well.
2:22First rule is to protect capital first.
2:25All right? So, that's the first rule
2:27right there. Is to protect capital
2:29first.
2:30Warren Buffett famously said,
2:32"Rule number one is not to make money.
2:35Rule number one is do not lose money.
2:38And then rule number two is to never
2:40forget rule number one."
2:42Your first job as a trader is not to
2:45make money. Is to not lose money.
2:48It's to protect your capital so you can
2:50stay in the game long enough for your
2:52edge to play out.
2:53Right? Like I said earlier,
2:55if you run out of chips, you cannot
2:58continue playing. And if you cannot
3:00continue playing, then you cannot win
3:02the game. So, the only way for you to
3:04actually win the game long-term, not
3:05just one time or two times, but
3:07long-term,
3:09is to play the long game. And the only
3:11way you can play the long game is if you
3:13have capital to play with. Right? So,
3:15protect your downside, protect your
3:17capital, and sure that, you know, you're
3:19not blowing everything on one trade.
3:21You're not risking your entire account
3:23on one trade. Because if you do just
3:25that, all it takes is one loss to wipe
3:27you out. Right? All it takes is one loss
3:30to get you out of the game.
3:33Rule number two, principle number two,
3:35is to define your risk before every
3:37single trade.
3:39Before you enter for a buy or sell the
3:41position, you always need to know
3:43exactly how much money are you willing
3:45to lose.
3:46Is it $100? Is it $1,000? Is it $500? Is
3:50it $300?
3:52Whatever it is, you need to clearly
3:54define a risk before every single trade.
3:57If you do not define the risk before the
3:59trade, emotion will define it during the
4:01trade.
4:02What I basically mean by that is that
4:04let's say today you're obsessed with
4:06making money, right? So, you're thinking
4:08to yourself if you win this trade, you
4:10are going to make 1,000 bucks and then
4:12you're going to be able to buy that
4:13brand new MacBook.
4:15But what you failed to take into account
4:17before you enter for the trade is how
4:18much you could potentially lose
4:21if this trade does not go as planned.
4:23So, as a result, you enter for the
4:24trade,
4:26price start going against you, you're
4:28down $500, you're down $700, price keep
4:31going against you, your heart keep on
4:34beating faster and faster, your palms
4:36start sweating as you watch your loss
4:38compound, and now you're down $1,000.
4:40Now you're down $2,000.
4:43And now you're down $5,000. And next
4:44thing you know, you blew your entire
4:45account on one trade because you haven't
4:48clearly defined your risk before every
4:50single trade.
4:51Okay? So, always make sure you only
4:54trade with money you can afford to lose.
4:57And it's very important for you to
4:58actually define how much money are you
5:00willing to risk on any given trade
5:03before actually entering for the trade
5:05itself.
5:06Next is to keep your risk consistent. Do
5:09not change your risk based on feelings,
5:11based on confidence, or based on
5:14emotions, right? The last thing you
5:15should be doing is the sizing up because
5:17you just got a winning streak. Or sizing
5:20up just because you lost a trade and now
5:22you want to make back the loss.
5:25Do not trade your emotions, trade the
5:27market.
5:29Okay? So, make sure you keep your risk
5:30consistent. Consistent risk leads to
5:32cleaner data, more stable emotions, and
5:35better long-term execution.
5:38Right? So, another reason to keep your
5:40risk consistent is so that you can keep
5:42your profits consistent. Think about it,
5:44right? Consistent profits require
5:47consistent actions.
5:50If today you're risking 5% of your
5:51account, tomorrow you're risking 3% of
5:53your account, next next day you're
5:54risking 2% of your account,
5:57sometimes you're going to lose 5%,
5:58sometimes you're going to lose 2%,
6:00sometimes you're going to lose 3%
6:01because your risk is variable, it's
6:04always changing,
6:05because of how you feel, then guess
6:09what? You cannot expect your profits to
6:11be consistent.
6:13Right? Like mathematically, the only way
6:16for your profits to be consistent is if
6:18you have your risk consistent. If you're
6:21risking the same amount of money every
6:22single trade, and every single time
6:24you're wrong, every single time you
6:25lose, you are only losing this small
6:27amount of
6:29your account. And every single time you
6:31win, you are making this much amount of
6:33money, which outweigh your little
6:34losses.
6:35Mathematically, long term is going to
6:37play out, it's going to work in your
6:38favor. Right? So, you need to make sure
6:40you keep your risk consistent,
6:42so that you can keep your losses small,
6:44and you can have big wins.
6:46Next is the use guardrails to control
6:48yourself.
6:49Set hard rules for max daily loss, max
6:52daily profit, and total trades per day.
6:54I'm going to show you how to do this
6:55later. I'm going to show you how to
6:57actually implement this into your
6:59trading system later.
7:01Right? But, you need to do this. Right?
7:02You cannot just rely on your emotions,
7:04you cannot just rely on your gut feeling
7:05in the heat of the moment. You have to
7:07define rules. You have to have like a
7:11framework to prevent you from blowing
7:13up. Because good risk management is not
7:15just about avoiding big losses. It is
7:18also about preventing emotional
7:20decisions. Okay? When you have like a
7:23very clear defined rule
7:26that you stick to on a daily basis, you
7:28are less likely to deviate from your
7:30trade plan. You are less likely to make
7:33stupid decisions in the heat of the
7:35moment, which means you are less likely
7:38to take unnecessary losses.
7:41Right? Play stupid game, win stupid
7:43prizes. That's it.
7:45Number five is a thing in probability,
7:47it's not certainty. No setup is
7:48guaranteed. Losses are part of trading.
7:51Risk management works when you accept
7:53uncertainty and focus on executing your
7:55edge over a series of trades.
7:58So, like what I mentioned right here, no
7:59matter how confident you are, no matter
8:02how many confluences you have attained
8:04from the market itself, you got a
8:06liquidity sweep, market shift, freaking
8:09uh chart patterns, whatever, right? The
8:12most
8:13confluence trade, right? You are so
8:15confident in the trade idea, there's no
8:17way it could go wrong.
8:18At least that's what you thought.
8:20Next thing you know, price reverse
8:21against you. Even though you have all
8:23the confluences, even though you checked
8:25every single box in the trade plan and
8:26your entry checklist.
8:28Well, because the market is random,
8:30right? At the end of the day,
8:32anything can happen in the market.
8:34Anything can happen in the market.
8:36Right? So, you want to make sure that
8:37you're thinking in probability, it's not
8:39certainty.
8:40Losses are part of the trading. It's
8:42just a cost of doing business, which
8:44means that you got to get used to it,
8:46right? You got to get comfortable with
8:47it.
8:49Warren Buffett loses, Ray Dalio loses,
8:52Paul Tudor Jones loses, George Soros
8:54loses. All of these billionaire traders
8:56lose from time to time.
8:58It's not about
9:01how often you lose.
9:03It's about how much money you make when
9:05you are right, and how much money you
9:07lose when you are wrong.
9:09Because like I said, if you can keep
9:10your losses small, and you can keep your
9:12wins big, mathematically, over the law
9:14of large numbers, over the long term,
9:16you will be profitable.
9:18That's the secret right there. I lose
9:21money, Warren Buffett lose money, every
9:23single person who trades lose money.
9:26Not because we are at trading, but
9:28because that's just the nature of the
9:30market. Out of 100 trades that you take,
9:32some is going to be losses, no matter
9:33how good or profitable your trading
9:35strategy is. Nobody on this God's green
9:38earth has a 100% win rate. Which means
9:40that you will incur losses. So, like I
9:42said, it's all about keeping the losses
9:44small. All about minimizing the losses
9:47and maximizing the profits.
9:50So, those are the five principles,
9:53right, that I adopt on a daily basis.
9:55This is how you should approach risk.
9:57This is how you should approach money,
9:59right? It's to always have the survival
10:02mentality. Before you can think about
10:04thriving, you should first think about
10:06surviving. You cannot thrive if you
10:09don't even survive in this game, right?
10:11So, think about protecting your
10:12downside. Think about protecting your
10:13account. Think about protecting
10:15yourself.
10:16Because the hidden cost of
10:18not adhering to your risk parameters is
10:22emotional.
10:24It's emotional. And the reason why I say
10:26this is because
10:28let's say you lose money on your first
10:30few accounts, right? Like you lose money
10:32trading, no matter how hard you try. You
10:35keep on losing money.
10:37The obvious loss is the money, right?
10:39The money, the hard-earned money that
10:40you have lost to the market. But the not
10:42so obvious loss is your morale.
10:45Now you will have a lower morale, and
10:48now all of these losses
10:50will feed into your identity.
10:53You will start to feel like, "Oh my god,
10:54trading is not for me. Trading is a
10:56scam. I'm bad at trading. Maybe I'm not
10:58born for trading." All of these
11:00infectious belief, doubts, is going to
11:03creep in your mind. That's the hidden
11:06cost of losses. That's the hidden cost
11:09of not adhering to your risk parameters.
11:12When you do not follow your risk
11:13management, yes, your account will
11:15suffer, but more importantly, you will
11:18suffer, right? You will suffer.
11:21Your mental well-being is going to go
11:24off the charts, right? And you will not
11:26be able to trade the market for what it
11:27is. So, yes, it's very simple. Go and do
11:31them,
11:32especially when you don't feel like it.
11:34All right? That's
11:35what risk management is. It's about just
11:37adhering to these rules even when you
11:38don't feel like it. Especially when you
11:40don't feel like it.
11:41Now, I'm going to give you a framework.
11:42All right? So, this is
11:45the framework that I personally use to
11:46manage my multi seven figure account and
11:49it's the same framework that allowed me
11:50to scale from five figures to six
11:52figures to now multi seven figures. It's
11:55the same framework that got so many of
11:56my students funded. It's the same
11:58framework that got
12:00most of my students to the stage where
12:02they are consistently profitable and
12:04they're making anywhere from 5K a month
12:06to $50,000 a month. It's all using this
12:09set of risk management rules right here.
12:12First of all, risk a fixed percentage
12:14per trade. Right? Like I said, keep your
12:15risk consistent.
12:17And the rule of thumb is to risk like 1%
12:21of your entire account on any given
12:23trade. Okay? So,
12:25the industry tells you to stick to 1%.
12:27Right? Because if you risk 1% on each
12:28trade, guess what? You can be wrong 100
12:31times
12:321% * 100
12:34before you actually blow your entire
12:35account.
12:36Right? So, it give you more breathing
12:38room to take a bunch of losses and still
12:40stay in the game.
12:42So, 1% is pretty good.
12:45But, what I found based on data is that
12:490.5% is pretty decent as well. 0.25% is
12:52pretty decent as well.
12:54The larger the account that you're
12:55managing, the lower your risk per trade
12:57should be. Like for example, right now
12:59I'm managing like a $5 million account.
13:02And I'm still risking 1% a trade. Right?
13:04Because that's the amount of money that
13:06I'm willing to lose.
13:07But, if I'm risking $10 million, which I
13:10can safely say that I'm not ready for
13:11that yet, but let's say I get to that
13:13point where I'm risking $10 million No,
13:15where I'm trading a $10 million account.
13:17I'm probably not going to be risking 1%
13:19on that the trade itself because 1% on a
13:22$10 million account is a lot a lot of
13:23money. So, that That where I might
13:25consider risking 0.5%.
13:27right? So you want to like just ask
13:29yourself what is your risk tolerance?
13:32What is the amount of money that you are
13:34willing to lose on any given trade?
13:37Okay, the maximum is 1% anywhere below
13:401% that's great. The lower the better
13:42right because the lower
13:43the more room you can afford to lose
13:46before you actually blow up right? Like
13:48I think about it risking 1% per trade
13:50you have 100 bullets in your gun. But if
13:52you risk 0.5% on on a trade now you have
13:55200 bullets. You have twice the amount
13:58of trades right?
14:00To actually
14:02play with right? But the downside of
14:03risking a small amount of money is that
14:04you make less money. So once again ask
14:06your risk tolerance
14:08I just introspect about your risk
14:10tolerance if you are more aggressive 1%
14:13is the right way to go if you're more
14:14conservative consider risking 0.25 or
14:17even 0.5% of your entire account on any
14:20given trade.
14:21Next is to set a max daily loss.
14:25So this is usually 2% to 3% max then
14:28stop for the day. Now the reason why I
14:30actually encourage you to set this rule
14:32is because
14:34you are going to get emotional when you
14:35get big losses. It's just part of being
14:38a human. You hate to be wrong. You hate
14:41the feeling of uncertainty.
14:44You hate it. Your ego hates it right? So
14:47when you take losses which is inevitable
14:49like I said earlier
14:51you are going to start feeling
14:52emotional.
14:53And if you don't have a gut rule that
14:55prevents you from making stupid
14:57decisions taking stupid trades what
15:00tends to happen next is that you're
15:01going to revenge trade. You're going to
15:03try to continue trading to make back the
15:05money that you have lost.
15:07You're going to over trade. You're going
15:09to force trades even though there's no
15:10opportunities.
15:12And when you do that you are no longer
15:14trading the market. You are simply
15:16trading your mental well-being.
15:19You're simply trading your emotions.
15:22And when you're trading your emotions,
15:24you are not looking at price. You are
15:27not rational. You are not logical. You
15:29are not executing your trade plan.
15:32And when you do that, the market is
15:33going to punish you.
15:35The market is going to punish you with a
15:36big loss.
15:37Next thing you know,
15:39you lose
15:401K initially. Now you take this other
15:42other trade. Now you are down 2K. And
15:45then you continue trading and now you
15:46are down 5K. And then next thing you
15:47know, you you have blown your entire
15:48account. Because in the heat of the
15:50moment, the emotional part of your brain
15:53overpowered the rational part of the
15:54brain. As a result, you were
15:57unconscious. You don't even realize that
15:59you are actually emotional, but your
16:02emotions were driving your
16:03decision-making.
16:05And that's
16:06a very dangerous way to be trading.
16:10So you want to have like a max daily
16:11loss, right? So
16:132% to 3% of your account, right? So for
16:14example, if your account got 100K, if
16:17you lose 3K,
16:18assuming you're risking 1% on on any
16:20given trade, which means
16:23you lose three trades, you stop trading
16:25for the day.
16:26Okay, you stop trading for the day. You
16:28sit back, re-evaluate what's going on,
16:30journal that I trade, reflect, and then
16:33get back to the charts when you are
16:35ready mentally.
16:38Okay, so yeah, having like a max daily
16:40loss helps out a lot. And also respect
16:42your max drawdown. Usually 5% to 10% max
16:44before reducing size or pausing.
16:47So this one is quite simple if you
16:48actually stick to
16:50rule number one and rule number two
16:51right here.
16:52If you have a max daily loss and you
16:53have a fixed risk per trade, your
16:55drawdown shouldn't be anywhere more than
16:571%.
16:59Right? On any given trade. And if you
17:01have five different open positions, then
17:04you'll probably be like 5% max.
17:07Right? So drawdown is like the amount of
17:09money that you are going to rate
17:12before you actually go back into break
17:14even or profitable. Right? So I'll say a
17:16good amount is like 5% to 10% before
17:18you're reducing size or pausing. So,
17:20once again,
17:22if you stick to these two
17:23and you have rule number four, you
17:25should be fine. Which brings us to rule
17:27number four, which is to limit total
17:29trades per day. Do not let one day turn
17:31into emotional over trading. Like I say,
17:34your job is to make sure that you
17:36minimize your losses.
17:38And you can minimize your losses in two
17:40ways.
17:41Quali- quantitatively, right? Which is
17:44just
17:45ensuring that whenever you lose, you
17:47lose a little bit of money, and that is
17:49adhering to your risk per trade.
17:51And also, another way is to
17:55limit the number of losses you incur on
17:58any given day.
18:00And that's what two, three, four is
18:01about. Right? It's about just ensuring
18:03that
18:04the most amount of money that I could
18:06lose for the day is 3% of your account,
18:08or even 5% of your account. And once you
18:10hit that, you're done.
18:12Or, you know, once you take three trades
18:15for today, you're done.
18:17Okay? So, even if you win those three
18:18trades, you still stop trading for the
18:20day because three is three, right?
18:22Doesn't matter if whether you win or
18:23lose those three trades. As long as
18:25you've taken three trades, you stop
18:27trading for the day.
18:28This prevents you from
18:31over trading, it prevents you from
18:33revenge trading,
18:35and most importantly, it prevents you
18:37from giving back the profits that you've
18:39made back to the market.
18:41Just think about it. How many times have
18:42you
18:43take a
18:44Let's say you win a trade, right? And
18:46that's another thing that I believe,
18:47right? I don't think the hard part is
18:49losing. I think the hard part is
18:50winning.
18:51Because when you start winning a trade,
18:53now your ego starts stepping into your
18:56decision making. Now, you start feeling
18:58overconfident, you start feeling this
18:59euphoria. And now you are inclined to
19:02just disregard the risk management
19:05because you're on top of the world,
19:06right? You feel like you're the king of
19:07the trading industry. You're the best
19:09trader in the entire world. Next thing
19:11you know, you continue trading
19:13and on the next trade itself, you end up
19:15giving back the profits that you have
19:16made back to the market.
19:19And in the next trade, you lose money
19:20and now you're back to square one. Or
19:21even worse, you are in a loss than you
19:23started in the first place.
19:25Right? All because you don't have like
19:27some form of rule to
19:28really just
19:30ensure that you
19:31limit the amount of trades that you're
19:33taking on any given day.
19:35Last but not least, is only risk on A
19:37quality setups. Protect capital by being
19:40selective, not just by sizing smaller.
19:43Okay? So, you want to make sure that
19:45you're protecting your capital by
19:47ensuring that you are only risking it on
19:50the setups that are worth taking.
19:52On the setups that has a high chance of
19:54working out. And that is the A+ setups.
19:58Right? Which is something that we talked
19:59about in the last few lessons, how to
20:00define an A+ setup. So, those are the
20:02setups that is worth
20:04deploying the capital for. Okay? Because
20:07those are the setups where, you know,
20:09once again,
20:10price is not going to suddenly go in a
20:12way because those models appear, but it
20:15has a higher chance of working out
20:16compared to if you take a setup that is
20:18a B setup or like a C setup. Now,
20:21understanding risk management is one
20:22thing.
20:23Actually following it real time is
20:26another thing. And that's where so many
20:29traders struggle. They know what they
20:31should do, but they don't do it because
20:33in the heat of the moment, emotions
20:35cloud their judgment. In the heat of the
20:37moment, they forget their trade
20:39management. They forget their risk
20:41management rules. They ignore it.
20:44And that's exactly why we built all of
20:46these risk management features inside
20:48Edge Flow, my trading super app.
20:51Once again, most traders already know
20:52what to do, but they just don't do it.
20:55Edge Flow helps you close that gap by
20:58turning risk management from an ideal,
21:01from a rule you have written down on a
21:02paper, into a trading system. You
21:05literally have no choice but to build
21:07all of these trading rules that I just
21:09showed you here into your trading
21:11system.
21:13Let me show you what it looks like. So,
21:15the first feature that we have is the
21:16auto risk calculator. Right? So, the
21:19first step is to make sure that every
21:20single trade is sized properly. So, for
21:22example, today if I were to enter a
21:24trade on EUR/USD, I come in here and I
21:26press trade. This is where the minute I
21:29place my stop loss, EdgeFlow
21:31automatically calculate the lot size for
21:33me based on my stop loss distance, based
21:36on my account size, and my risk per
21:38trade.
21:39All right. So, in this case, I'm risking
21:411% per trade because that's the god rail
21:43that I've set for myself in my settings.
21:46So, if I come here and I place my stop
21:48loss at let's say 1.170
21:5185, right? You can see my stop loss
21:53right here. Look, the lot size
21:55automatically get calculated for me. And
21:57it's automatically updating in real time
21:59based on the fluctuations of price. This
22:02way, I'm always risking 1% of my account
22:05on any given trade.
22:07All right. So, this is the very amazing
22:09sort of feature for me when I started
22:11using it because I don't have to go to
22:14another website, spend so much time
22:16trying to figure out my lot size. The
22:17system literally does it for me.
22:20And if you don't like to place the price
22:22of the stop loss, you can also place it
22:24in terms of pips, right? So, for
22:25example, I want to have like a three pip
22:27stop loss. Boom, lot size automatically
22:29get calculated. Or even just like a one
22:31pip stop loss. Boom, lot size get auto
22:33calculated.
22:35Right? So, very useful feature to have.
22:37It pretty much reduces the friction that
22:40is needed for you to be disciplined,
22:42right? For you to actually adhere to
22:44your risk parameters.
22:46Right? This way, you are no longer
22:47guessing a lot size or eyeballing your
22:49exposure. You're entering every single
22:52trade with a defined risk amount that
22:54matches your trade plan.
22:56Which brings us to the god rails that we
22:58have right here. Okay? So, if you notice
23:01all of these guard rails, you can
23:03configure them in your settings. This
23:05allows you to have a max loss, a max
23:08profit target,
23:10and also
23:12the max trades per day, and also your
23:14risk per trade. All of these is what we
23:16call the guard rails. All right, so if
23:18you go to settings and you go to trading
23:20preferences, this is where you can set
23:21your guard rails.
23:23Like I said, you want to limit the
23:24amount of trades that you're taking on
23:25any given day. So, this is where you can
23:27set it over here, right? If you want to
23:28take three trades a day, put that in. If
23:29you want to take two, put that in.
23:31Whatever it is, just put it in right
23:33here.
23:35So, once again, this is very important,
23:37right? Because this helps us reduce
23:39overtrading, reduce impulsive trades,
23:42reduce bottom entries, reduce low
23:44quality setups that is outside of our
23:46entry model.
23:48When you know you only have a limited
23:50amount of bullets, which is five in this
23:52case, you become much more selective.
23:55Now, you're just thinking through every
23:56single trade before you actually enter
23:58for the trade itself.
24:00And that selectivity improve execution.
24:04Okay, so for example, if I set three
24:05right here, I'm only have three bullets
24:07for today. So, I want to be very
24:10mindful. I want to really make sure that
24:13I think through before I enter for the
24:14trade, because once I hit three trades,
24:16I'm done for the day.
24:17Another thing is the max daily loss,
24:20right? So,
24:22once again, this helps you
24:24protect yourself from turning one red
24:26day into a destructive day. Once your
24:29max daily loss is hit, that should be a
24:31signal to stop.
24:32This rule right here exists to protect
24:34you from revenge trading, emotional
24:37sizing, forcing setups after losses, and
24:40just digging a deeper hole for yourself.
24:42Right? So, once again, if this account
24:45that I'm using right now is a million
24:46dollars, right? So, if that's the case,
24:49my risk per trade is usually about 1%,
24:50so let's say I only want to be losing a
24:53total of 2% or 3% on any given trade,
24:56this is where I can just put the max
24:57daily loss as 20k or 30k or whatever I
25:00want to set for the day. And then once
25:03I actually lose more than 30k or near
25:0530k, this is where EdgeFlow will
25:07automatically block me from trading. I
25:09will not be able to continue trading
25:11because my max loss has been triggered.
25:13So, this way it prevents me from revenge
25:16trading. And also max profit, which
25:18prevents you from giving back your
25:20profits back to the market. Right? Like
25:22I said earlier, the problem right here
25:23is with winning. A lot of traders, they
25:26make money early and then they keep
25:28trading out of greed, out of boredom,
25:30out of overconfidence, and they end up
25:33giving it back.
25:35Okay?
25:36Sometimes the most disciplined decision
25:38is to stop after a strong session. Once
25:40you make money, know when enough is
25:42enough and just stop. And this got real
25:45right here allows you to protect a green
25:47day. Allows you to protect your profits
25:49and not give it back to the market.
25:51Right? So, I usually like to set it at
25:52around like 5% to 10%. Once I hit 5% or
25:5510% on any given day, I'm done for the
25:58day. Right? Like that's the most amount
26:00of money that I'm willing to
26:02uh make before I just stop because I
26:04know for a fact that if I go more than
26:05this amount, I will just end up, you
26:07know, making stupid mistakes and giving
26:08back the profits back to the market.
26:10And also like the risk per trade right
26:12here, like I mentioned earlier, this is
26:14where you can define how much money you
26:15want to risk on any given trade based on
26:17your account.
26:18In this case, 1% is where I usually like
26:20to risk. I can even go to 0.5% as well
26:23or even 0.25%
26:25and the lot size will automatically
26:26adjust by itself to match the risk.
26:28Right? So, let's say 0.5% in this case
26:31right here.
26:32And this is where when you go and trade,
26:34you realize that the risk per trade has
26:35been changed to 0.5%
26:37and if you set a stop loss, you will see
26:39that it's a lot more lesser right now,
26:42right? The loss is a lot more lesser,
26:44right? Because once again, this is
26:45calculated based on the stop loss
26:46distance and based on the risk per
26:47trade. So, all of these features that we
26:49have in place helps to reduce the
26:52friction
26:53it takes to trade in a disciplined
26:55manner.
26:56Okay, like if you don't have these
26:58guardrails in a system,
27:00it just make it a lot more difficult for
27:02you to become consistently profitable.
27:05Right? Because
27:07when you are trying to be disciplined,
27:09it requires a lot of willpower. It It
27:11requires a lot of mental energy.
27:14And when I'm putting that energy into
27:16trying to be disciplined, it's going to
27:17be very hard for you to actually just
27:20trade profitably. For you to just trade
27:22fast.
27:24So, with EdgeFlow, instead of relying on
27:26discipline in the moment, you literally
27:28build discipline into your environment.
27:31Right? So, once you hit the max trades
27:33per day, this trade button get grayed
27:34out. You are not allowed to trade. You
27:36can override it, but it will require you
27:38to input a reason. Same thing, if you
27:40hit the max loss, if you hit the daily
27:42target, you will not be allowed to
27:43trade.
27:46Right? So, this means that your slot
27:48sizing is calculated there properly.
27:50Every single time you are risking the
27:51same amount of trade, 0.5% or 1% based
27:54on what you choose,
27:56which means that you will have a
27:57consistent risk equal consistent
27:59profits.
28:00Also means that your risk is always
28:02defined before the trade. Right? You are
28:04not scrambling around here thinking
28:05about, "Oh, what lot size should I use
28:06for this trade?" No, because it's
28:08automatically calculated for you.
28:11Once again, you have no choice but to
28:12like just stick to your risk parameters.
28:15Your daily loss has a hard cap. Right?
28:18So, once you hit this amount, you're
28:19done for the day. Your daily profit can
28:21finally be protected. Your total number
28:23of trades is controlled.
28:25Once again, all of these guardrails just
28:27makes it so much easier to stay aligned
28:29with your rules even when the market is
28:31moving fast. Most traders do not fail
28:33from the lack of knowledge. A lot of you
28:34guys watching this video right here
28:36already know about these principles. You
28:37already know what to do. Right? You
28:39already know that you shouldn't be
28:39risking your entire account on one trade
28:41because that's gambling. That's not
28:43trading.
28:45They fail from a of consistency.
28:49And consistency is so difficult to
28:52maintain
28:53when you are trading independently by
28:56yourself.
28:58But it becomes so much easier when your
28:59trading environment supports that
29:02discipline.
29:03So instead of relying on willpower,
29:06uh, you know, energy, or your emotions,
29:08or guesswork,
29:10your trading environment literally
29:13support that discipline, right?
29:14Literally build it into your system
29:16itself. So now you have no choice but to
29:18be disciplined on a daily basis. And
29:20like I said, consistent actions lead to
29:23consistent results. When you're
29:25consistent in terms of the way you
29:27manage
29:28your capital,
29:31it's only a matter of time till you see
29:32consistent profits.
29:35That's why Edge Flow is not just about
29:38analysis. It's also about execution and
29:41behavior.
29:43Because your edge is not in your
29:45strategy.
29:47Your edge is also in your ability to
29:50manage risk, protect capital, and stay
29:53disciplined over a large sample size of
29:55trades.
29:58Everything you need to trade profitably,
29:59everything you need to think, act, and
30:01feel like a professional trader is in
30:03Edge Flow.
30:04So if you want to get your hands on this
30:05awesome trading software, click the link
30:07in bio. Because at the end of the day,
30:09risk management should not live only in
30:11your head. It should be built into the
30:13way you trade.
30:15Okay? And that's the real purpose of
30:16having all of these risk calculators and
30:19got real sense in Edge Flow.
30:20To make discipline execution easier, to
30:24reduce the friction it's needed to be
30:26disciplined, to do the right things, so
30:29that it can become more consistent,
30:32so that your results can become more
30:33repeatable and more predictable, and
30:36more scalable.
30:38Right? So with that being said, hope you
30:39guys have enjoyed this lesson. And as
30:41always, remember you're just one trade
30:44away.

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