#14 - How much should I risk per trade?

Often, beginners want to know, “𝐇𝐨𝐰 𝐦𝐮𝐜𝐡 𝐜𝐚𝐧 𝐈 𝐦𝐚𝐤𝐞?” 🤩⁣
instead of “𝐇𝐨𝐰 𝐦𝐮𝐜𝐡 𝐰𝐢𝐥𝐥 𝐈 𝐥𝐨𝐬𝐞?” 😵⁣
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The correct question is, “𝗪𝐡𝐚𝐭’𝐬 𝐭𝐡𝐞 𝐫𝐢𝐬𝐤?” 𝐨𝐫 “𝐇𝐨𝐰 𝐦𝐮𝐜𝐡 𝐬𝐡𝐨𝐮𝐥𝐝 𝐈 𝐫𝐢𝐬𝐤?” 🧐 ⁣
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Trading/Investing is just a game of probability. 🎲⁣

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You’re risking a certain amount of money under a specific market condition, with the available information you have and making the best prediction. 🔮⁣
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Because none of us are wizards and the future is always uncertain, knowing your risk is perhaps the most crucial element of trading/investing. 🧙‍♂️⁣
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Personally, the risk/reward ratio is my bread and butter. There are a lot of traders focusing on the winning rate, and sure, it will be great to win and win a lot - but mathematically speaking, even though the probability of coin flip might be 50/50, but each flip is entirely random and also at 50/50. 🥥⁣
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𝐓𝐡𝐚𝐭 𝐦𝐞𝐚𝐧𝐬 𝐭𝐡𝐞 𝟓𝟎/𝟓𝟎 𝐬𝐡𝐨𝐭 𝐨𝐧𝐥𝐲 𝐚𝐩𝐩𝐞𝐚𝐫𝐬 𝐰𝐡𝐞𝐧 𝐭𝐡𝐞 𝐬𝐚𝐦𝐩𝐥𝐞 𝐬𝐢𝐳𝐞 𝐢𝐬 𝐥𝐚𝐫𝐠𝐞 𝐞𝐧𝐨𝐮𝐠𝐡. ⁣
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A lot of technical traders love to use backtesting to create a strategy with a high winning rate. However, even if you have an 80% winning rate, you will never know when the 20% losing will come - or worse, how big is that size in reality. 🤭⁣
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You might lose 20 out of 100, or perhaps, 200 out of 1000, so even if you take 1% risk per trade, you would have lost 200% before you start to win…😭⁣
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Of course, this is an extreme example and to make a point that I think the risk/reward ratio is much more critical in the aspect of trading! ⁣
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Because of that, how much you should risk is determined by how much you can win potentially. ⁣
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If you risk $1 to make 20 cents, then you’re much better off not to take the trade at all! 🤦⁣
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𝐓𝐫𝐚𝐝𝐞𝐫𝐬, 𝐰𝐡𝐚𝐭 𝐚𝐫𝐞 𝐲𝐨𝐮𝐫 𝐭𝐡𝐨𝐮𝐠𝐡𝐭 𝐨𝐧 𝐭𝐡𝐢𝐬?