How I manage position size, money, and risk management (Class 15)

Summary

This video emphasizes the importance of money and risk management in trading, particularly for aspiring traders seeking consistent profitability. The speaker shares personal strategies for managing risk, leveraging, and scaling trades, while highlighting the significance of market analysis and sentiment. They discuss the use of leverage in the futures market, especially with cryptocurrencies, and stress the need for traders to have an edge and make informed decisions. The video also teases an upcoming lesson on trailing stop losses to maximize profits when trades move favorably.

Takeaways

• 💼 Risk Management is crucial for consistent profitability in trading.
• 🧘 Trading psychology is an integral part of risk management but will be discussed later.
• 📉 The speaker consistently closes trades in profit, with one trade exceeding 215% profit.
• 💡 Importance of being overfunded and under leveraged to maintain risk exposure.
• 🚫 Trading on high leverage increases risk due to trading with borrowed assets.
• 📉 High leverage can lead to higher risk exposure, which should be limited.
• 🤖 The speaker uses personal risk management strategies when trading futures, especially cryptocurrencies.
• 📊 Market analysis is key, and the speaker's predictions are usually accurate based on sentiment and technical analysis.
• 💰 Example given: Trading with a $1,000 account using 10x leverage, only risking $2,500 of purchasing power.
• 📌 For beginners, it's recommended to trade under 5x leverage to minimize risk.
• 🔄 The concept of scaling into a trade is introduced to manage risk and average entry price.
• 🛑 Stop loss is used as a last resort when the market moves significantly against the prediction.
• 🔄 A trailing stop loss will be discussed in the next class to maximize profits on favorable trades.

Q & A

Why is money and risk management important for traders?

Money and risk management is crucial for traders because it helps them maintain consistent profitability in the market, limit their exposure to risk, and avoid being overly greedy, which can lead to significant losses.

What is the speaker's approach to risk management in trading?

The speaker emphasizes the importance of being overfunded and under leveraged to maintain risk exposure. They also advocate for not trading with the full leverage available, but rather a fraction of it, to reduce risk.

What does the speaker mean by 'leveraged' in the context of trading?

Being 'leveraged' in trading means using borrowed money or assets to increase the potential return on investment. However, it also increases the risk of loss, as leverage amplifies both gains and losses.

How does the speaker use leverage in their trading strategy?

The speaker uses leverage but limits their exposure by only trading with a portion of the available purchasing power. For example, with a $1,000 account and 10x leverage, they might only trade with $2,500, keeping their initial margin at $1,000.

What is the significance of having a high market analysis accuracy according to the speaker?

Having a high accuracy in market analysis allows the speaker to predict market movements with greater confidence, which in turn helps in making informed trading decisions and increasing the chances of successful trades.

Why does the speaker suggest starting with a lower leverage for beginners?

The speaker suggests starting with a lower leverage for beginners because it reduces the risk of large losses due to market volatility. It provides a safer entry point for those who are new to trading and still developing their strategies.

What is the concept of 'scaling in' on a trade as mentioned by the speaker?

Scaling in on a trade involves adding to a position as the market moves in a favorable direction. This strategy helps to average down the entry price and increase the potential profit if the market continues to move as predicted.

How does the speaker manage the risk when scaling in on a trade?

The speaker manages risk by using a portion of the remaining collateral in the account to scale in on a trade. This approach ensures that the average entry price is lower, and the risk is spread out over multiple entries.

What is the role of a trailing stop loss in the speaker's trading strategy?

A trailing stop loss allows the speaker to lock in profits as the market moves in their favor. It automatically adjusts the stop loss to a more favorable level as the trade becomes more profitable, helping to maximize gains.

Why is it important for traders to have an edge in the market according to the speaker?

Having an edge in the market means having a unique advantage or insight that can give a trader a higher likelihood of success. This could be due to superior analysis, understanding of market sentiment, or a unique trading strategy.

What advice does the speaker give regarding the stop-loss placement in their strategy?

The speaker advises against placing a stop-loss at the initial entry point. Instead, they recommend scaling into the trade and using a trailing stop loss to manage risk more effectively and take advantage of further price movements.