Richard Temple

#RR Risk Ratio

• As I’ve promised, here is the post about RR
There are many different methods of risks control, and I want to tell you about the best ones, from my point of view.
You can’t control the market while you're trading, you can’t control the direction the price will follow. The only thing that secures your money is stop-loss order. And that, in turn, depends on size of the position. Nothing more depends on the trader.
Only stop-loss is under his control, but don’t overuse it. Don’t place it too frequently.

The first thing that makes you lose your money is the anxiety of missing out a big deal when you monitor the minute chart. This is called FOMO - fear of missing out. The second thing is holding too many positions opened. So let’s calculate the right size of the trade.

Take a look at the formula on the chart.
1. It is necessary to know how much money you are ready to lose.
For example, you have $100 000 deposit. If you are a risk-taker- you could risk 20% of your account. Average trade size for institutional traders is 2-5%.
The larger percentage of your deposit you trade, more chances your account can be depleted in a hurry.

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2. You need to decide on your risk factor:
Usually risk contains 10-12% of your deposit following the aggressive strategy. You should always know what percentage of your money you are ready to lose. If you know surely your maximum possible loss and place stop losses in acceptable places, you can’t lose more than you have set up. Of course, it is necessary to consider possible squeezes, scam wicks etc.
Let’s say you have decided that max loss for you is $500 and the overall risk is less than 10% of your deposit.

So, the risk factor for you is $10,000 (from your $100,000 trading account). Thus, you can fail 20 times and lose only $500.
After three fails, l close the terminal and go for a walk. An hour later, I probably will be ready to trade a few more times.

• Formula:
Your deposit is multiplied by the risk percentage (ex. 10%) and divided by max possible loss (this number is multiplied by 100%). As a result, we get the number of contracts that you can trade.
100 000 10 = 1 000 000
500 100 = 50 000
1 000 000 / 50 000 = 20 - the number of contracts you can trade
The point is deposit management: the more money you earn, the more positions you can open. And if you fail, the order size is getting less.
The fact is if you make a big bet, you are guaranteed to lose it.

The money management should begin before entering the deal. You need to know how many times you can trade and what part of money you can allow yourself to lose for each transaction. Trade on not more than six markets simultaneously.
There is the greatest risk of losing everything, when you are sure that you cannot lose. Fear allows you to be careful.
You shouldn’t risk up more than 5% of your capital per trade, regardless of your experience. Remember that the market is not a playground. It is cruel. There are many people who lose all deposit in a flash. The market is a puzzle without any instructions.
I hope I helped you a little to crack it.

Respect the market, respect your teacher.

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