RISK

Every trade has a so-called “Risk”. Of course we want to win every trade but unfortunately this is not going to happen in the world of trading. Determining and calculating risk is therefore important, whether or not the most important and is underestimated and not understood by many.

Risk is the maximum amount that we want to lose per trade. This is a choice for everyone. The better your trades have been seen over the past 100 trades, the more risk you can take if you consistently make a profit. 2% is common. Are you new or not always trading profitably 0.5% or 1% risk is a better idea.

The risk you take on 1 trade is the loss you may make on your entire balance. You will have to pass this on, we will come back to this later in this document. It is also important to use the same risk on your trades as much as possible in order to end the line as well as possible. See in the table below what happens on an amount of $ 10k with regard to risk.

You can already see what will happen to your portfolio if you take more or less risk. Of course, more risk means more profit. If you make losing trades, you can also see how quickly your account balance declines if you increase your risk by a few%. Where many people are mistaken is the

misery that you incur if you take too much risk, because loss is simply difficult to make up for.
Realize that with a 50% loss on a trade, you don't have to take in 50% profit to make up for it! To make up for 50% loss, your next trade must be 100% profit. A second factor in this is that you are always 100% in your trade towards your stop loss, so you make a 50% loss on your entire investment. Suppose you make 100% profit on your next trade and in the perfect world you only have 1 TP and get hit, your loss is good. However, you usually work with multiple entries and TPs and will therefore never make 100% profit on your entire position. As we mentioned earlier, making up for a loss can sometimes be a daunting task if you take too much risk and move and / or remove your stop loss.

You now understand that determining the risk is extremely important. We also recommend that everyone do this. Are you new? Are you not consistently making a profit on all your trades? Take less risk. Risking a 0.5% or 1% per trade is the max. REAL! And yes, you make less profit if you take less risk. But take a closer look at the tables above. Do you really make less profit if you take less risk? How much risk should you take after that? How many good trades do you have to make to straighten things out? After that 5% or 10% risk, that "oh so great trade" that has gone wrong, use less risk. Taking 10x or 5x less risk, back to 1% ... That will be a one-year plan. Or take more risk to make your trade right? Take a good look at the tables above. Determine your risk and let's agree together that this is never more than 2%. What the risk is and why this is so important should now be clear. How are we going to apply this in practice? The risk or risk has nothing to do with the location of your stop loss. You determine your entry, stop loss and only then the targets in advance. We will explain this by means of examples. The example will be using a Binance trade without leverage.

Example 1

Portfolio: 1 Bitcoin

Trade XRP / BTC

Risk 2% portfolio

Entry: 2578

TP: 2743

SL: 2500

The trade as above gives us a 3% loss on hitting a stop loss. The trade as above gives us 6% profit when hit take profit. We don't want to lose 3% when hitting the stop loss because we want to risk a maximum of 2% on our trade so we have to count back. The question now is: With how much bitcoin can we buy XRP so that we risk a maximum of 2% if hit the stoploss? (2% risk trade)

1 Divide the number of bitcoin portfolio by 100 X “risk” = Y

2 Stop loss of your trade setup / 100 = X

3 Risk / SL = Position size in BTC

* Y / X = Position size in btc

1: I have 1 Bitcoin. I divide this by 100 x Risk. 1 / 100x2 = 0.02 BTC

2: My stop loss is 3% away from my entry for this trade. 3/100 = 0.03

3: I divide my risk in relation to my portfolio -> 0.02 by my stop loss in decimals 0.03.

So 0.02 / 0.03 = 0.66 BTC

Now it is clear what I can use in this trade. Namely 0.66 Bitcoin. As my stop loss hitting 3% on this trade it costs me -> 0.66 / 100 x 3 = 0.02 BTC! So look back to above. We want to risk 2% of our total if we hit a stop loss. 2% of 1 btc = 0.02 If we hit TP with a risk / reward ratio of 1: 2 -> 3% loss 6% tp, the profit in this To be 0.04. 0.66 / 100 x 6% tp = 0.04. Risk / reward story in a nutshell.

Example 2

Portfolio: 1 bitcoin

Trade XRP / M20

Risk 2% portfolio

Leverage 10x

Entry: 2578

TP: 2743

SL: 2500

Because we use a leverage of 10x here, this should be viewed differently. The trade as above gives us a 30% loss on hitting a stop loss. The trade as above gives us a 60% profit when hit take profit.

However, when we hit stop loss, we want to lose a maximum of 2% of our portfolio. For this you use the same calculation as in example 2. You will therefore have a loss of 20% Hatch. By now only using 10% amount of your portfolio, the loss is not 20% only 20% / 10 = 2%

You can use the calculator in Bybit for this. There are also excell sheets on the internet that help you calculate your position size. Always check at “cost” in Bybit whether this is correct. We hope you now understand how important the risk is per trade. So remember. It risk what you take (maximum loss) is predetermined and has nothing to do with the place of your stop loss. You calculate your position size based on the stop loss and lever. This will often differ if you calculate this precisely per trade. This way you will be the best at the bottom of the line because the risk per trade is always the same.

The Risk & Position Size calculator is available on our website in your member portal.

If you have additional questions, you can always send them to our team.