I risk $107 to make $7,500 in Trading… This is how

as a day trader our main focus should be to stay alive in this game as long as possible and the only way we can stay alive is by having a proper risk management strategy now a lot of Traders when they get started or that are trading they focus on what strategies they should focus on how they should approach the market how they should chart and all these other great things and while these things are great they're not enough to keep you alive the only way you'll be able to stay alive and be able to put on more trades is by having capital and our job is to protect that Capital protected day in and out trade by trade and in order to do that we need to have a well-defined plan a well-defined risk management plan that helps us avoid taking too much risk and helps us avoid having too much exposure in trades and in this video I want to talk about my risk management plan how you guys can build a risk management plan I'm going to talk about position sizing and I'm going to talk about R multiple now I'm talking about things that most Traders don't like that isn't amazing that isn't you know a shiny object but this is important guys so please stay through the whole video take down notes pay attention to the important parts and understand that if you want to make it here you have to have a good risk management plan so let's talk about the first component of my risk management plan which is every trade I take I have an idea on how much I'm losing and where I am exiting so once again before I take a trade guys any single trade I know where the trade needs to go for me to be wrong and how much I will lose if I'm wrong now most Traders when they take a trade they go well if I buy this trade at $10 and it goes to 15 I will make $5 or I'll make $50 or I'll make $5,000 and Traders get in this Fantasy Land of what they will make now on a professional level if you want to be here in a long period of time you need to flip that you need to go well if I take this trade and let's just say for example purposes this is $10 and this is $12 and once again just something basic let's just go in like the basic of support resistance right and I'm like well I want to go long in this particular trade the first question ask okay well where does this trade need to go for me to be wrong right that's where I will be placing my stop so if I go long here this trade maybe needs to go to $9 just going to make it round number for argument sake that means if I am wrong and I buy a 10 I will lose $1 right now that is the first step I take before any trade of course I have a strategy of course I have setups I have a focus point on how I think the market will or should move whatever the case is but when I get there I have to protect my downside and protecting my downside allows me to look at should I take this trade does this trade make sense from a risk perspective if a trade doesn't make sense in terms of a risk perspective I won't take the trade right so to just go to another example would you risk $100 to make $1 now of course the the $1 is not guaranteed you have a 50% chance that you will make $1 or 50% chance you will make 100 you most likely will not risk the 100 to make the $1 because it just doesn't make sense but now what if I said would you risk $100 to make $1,000 and you maybe have a 55% chance of being right for argument sake right now you'll maybe take the trade so these two numbers have to make sense of like what you're risking and what your reward is so when I look at a trade my first component of okay if there's a setup great but the setup is not what makes me take the trade the setup is what kind of ignites me to look at the trade and be interested the risk component is what attracts me right so if I look at this trade from a risk component I will realize that okay I'm risking $1 okay and also it's not just random like I can't just say well I'm going to buy this a 10 and I'm going to risk you know $1 or $2 cuz that's what I want to risk on the trade no my stop loss where the trade has to go and if it goes them wrong has to make sense so if I take the same example for argument sake let's just say this trade is now at $12 if it's at $12 and I'm like well I want to risk a dollar and let's just say the dollar is at 11 for argument sake I'm still risking $1 on this trade but if it goes to 11 that doesn't mean I'm wrong the trade could still be in play so that's what I'm saying by the trade needs to prove that you're wrong okay so just to go back to this example now when I am looking at this particular trade once again I'm risking a dollar I have to look at the second factor is does this trade have room to go up so for basic examples basic argument once again if I'm buying this at 10 and this does go to 12 I'm basically making $2 if I'm right and if I'm wrong I'm essentially risking $1 so in that trade my potential R is two to one I'm risking about a dollar to potentially make two so that's how I look at trades from a risk perspective whenever I take a trade now how much do I risk that is all contingent on my account size how much I risk will be different than how much you risk how much the guy next to you or the Girl Next to You risks will be different than everyone because that is contingent on your account size so if your account size is let's say a th000 I always say go off the one or two % Rule and also keep in mind this is if you're a beginner this is if you have not found profitability in your trading uh if that's the case risk 1 to 2% of your account size now if I risk 1% right of $1,000 at that point that is what my risk component should be so if I look at this particular trade let's just say 1% is $10 that means I'm allowed to risk $10 on this trade now in retrospect if I'm risking $10 $10 on this trade that doesn't mean I only put $10 into the trade that means because I'm risking $10 on this trade I can only buy a certain amount of shares or contracts or whatever the case is to only lose $10 I'll show you guys so if you're buying this at 10 you're buying this stock at 10 and your stop loss is at 9 that means you are risking $1 right now if you are risking $1 and I can only lose $10 per my account size the most I should be able to buy is 10 shares or 10 contracts and 10 contracts or 10 Shares are essentially going to be a $100 in cost so I'm paying $100 I'm risking $1 and I have 10 shares that means if I buy 10 shares here at 10 and those 10 shares go to N I will only lose $10 that is what I mean by position sizing that is what I mean by you need to look at your account size now obviously when you get to a more consistent level your risk will be altered there are trades for me personally that I increase my size increase my risk depending on the day setups depending on the market conditions right so my risk is not consistent day in and out week in and out it has gotten to a point where if I have a high quality setup I will be more aggressive on risk if I have been trading well and I have a strong bank roll meaning a strong amount of capital behind me of profits that I can actually risk in the markets and it makes sense I will be harder and I will double down on risk but that is also because I have been profitable for a very long period of time now if I go back to the beginning days I would keep my risk consistent until I find profitability and then I would look to alter size so you also have to understand what stage you are in okay another thing I want to talk about really quick is working capital right meaning Capital invested into a trade and risk right so I see a lot of Traders they will see that I've taken a position where I put $100,000 in and they're like well because he put $100,000 in he's risking 100,000 no guys just because someone invested 100,000 doesn't mean he or she's risking that and that's not what you should do because as Traders we need to have a stop or where this trade goes we will be wrong we need to factor in what that loss will be right so for example if I buy a trade that is at $10 once again same concept and I put my stop at nine if it goes to nine I lose a dollar right and let just say I can buy a 100 shares if I buy a 100 shares a 10 that's a 000 that's how much this trade is costing me this is how much capital is required for me to put into this trade $1,000 but because I bought a 100 shares or 100 contracts or whatever right and my stop is at 9 I'm risking $1 so $1 multiplied by my share amount which is 100 I'm only risking $100 I'm not risking a thousand me risking a th000 is if I don't hit my stop and this trade goes all the way down to zero so I just wanted to make that clear because a lot of people have a misconception about that so that's the first component of position sizing placing your stops and taking from the are multiple so one main thing that everyone should focus on is something called R so this is something that I focus on a lot I always say guys don't look at the final number of my trades look at what I risked to make that trade or make that amount right so if you see me make $30,000 and you see anyone make 30 grand right the first question is what did this person risk if I risk 30,000 to make 30,000 I have a one R trade now this looks great as a final number but does it really make sense for me to have 30,000 does it make sense for me to view this trade as great opposed to let's just say I made $5,000 but I risk $11,000 to make that 5 grand now this trade which is a 5r trade is a much much better trade than anything else so that's why it's really important to understand what you're risking on trades right so I'll show you guys some examples so here uh we're going to look at my trade Zeller really quick let's say I go to this trade you can see that I made 25 Grand on this particular trade right now this number sounds great it's phenomenal but the main thing that we need to understand is okay well what was the r on this particular trade right it was 2. 62 R how did we get to that number let's take a look at that really quick right so when we look at the the r number right we are able to understand that based on my stop based on where I this trade had to go for me to be wrong this particular trade you know yes 25,000 is the number but based on my stop which was at a120 I was risking 9600 so I risked 9600 to make 25,000 where my outcome once again was 25k risk 9600 and I ended up making a little over a 2. 6 R I made 2.

6 times my risk amount that is the main thing we as Traders need to care about there's nothing else that matters besides that right so if I go to some other trades and I go let's say here 2. 21 R I go to some other trades right 2. 43 R right if I go here 3.

6R right some trades are great some trades are not great so if I go to this particular trade I made. 29r right so I risked $562 but I made $162 so this trade looks great it's like wow he made $162 and I'm like yeah that's that's a green trade that someone may check off and say well this is a great trade but when I go into the logistics of the trade based on where my stop was based on if this trade went there I would have been wrong I was risking five $500 to make $162 and guys think about it long-term wise that is not sustainable because how many times do I have to be right to be able to continuously being profitable right so having an R multiple that doesn't make sense or is way off is just not going to allow you to be profitable even if you have some trades that are profitable right so to go back to R how is R calculated what that is and how we can calculate it is the following way what I do for R is every time I take a trade let's say we go back to the 10 example trades at 10 I put my stop at 9 okay so because my stop is at 9 I will look at the trade outcome so I take a trade I know I'm buying this trade at 10 I know my stop is a nine meaning my risk on this trade is $1 right so because my risk is $1 I look at the trade outcome now if the trade outcome is $11 and I profit $1 I just divide the one by one which I was showing you guys in trade Z my R multiple is 1 R I made one times my risk if if I end up selling this at 12 because I made $2 on the trade and a risk one my R is 2 R if I end up going to 13 I risk $1 to make three so that's three R so that's how it works on the upside and that's how we need to calculate it right now on the flip side how R multiple works is the following right so when you have a red trade how does it work so it's the same exact concept you buy a 10 you put a stop at 9 now if you sell at 9 because you plan to lose lose a dollar and you lost a dollar your R is -1 R but there are instances where your R and people have asked me Umar your R not a negative 1 it's a neg3 or a negative something so when you go to this day right my R is -3. 6 that's where it gets interesting right now to go into this trade my stop on this trade was a $150 okay and I didn't hit my stop on this particular trade so what happens when we have trades like this is we start going well this is what I'm risking based on my stop but this is what I lost so this happens if you don't follow your stop so if you see your r ends up being more than negative -1 R consistently that means you're not following your stop you're not executing at that number that you originally planned so I have netive 3.

62 R I lost 3. 62 times what I actually lost in the particular trade which is a big red flag so in this particular trade that I was talking about again right we go at 10 stop at nine right if I don't sell at 9ine my stop which was my predetermined stop losing $1 right and this goes to seven and I sell at seven now I lost $3 risking a dollar so my R is a -3 R which is a big red flag flag so that's why I look at r a lot because when I look at R from a risk management point of view I'm able to identify you know am I following my stop am I making the most on my trades it also helps me look at my trades from an actual trading point of view and not a p&l point of view right because I'd rather have 10 trades where I have more than a 2 R return than have 10 trades where I made $22,000 but the return was 05 R right because think about this guys in trading we are not always going to be right it's just a given like you're going to be wrong you're going to lose money and trading is a probability game right so if you have an average of let's say 3 r or even 2 R let's just say 2 r or 3 R if you have a 2 R that means you're making two times what you're risking if you're write five times out of 10 times which is 50% of times and you have a 2 R you're you're going to be profitable on a 50% win ratio now if you're win ratio is even 40% right you will still essentially be profitable because you have a good R multiple you are making more than what you're risking and that kind of changes the concept where Traders think you need to be right all the time you don't need to be right all the time you just have to be able to focus on your R multiple so that's where R is beautiful right because it allows you to look at your trades from a better point of view and it also allows you to stay profitable by being right less right and if you can achieve this to get to a higher number it allows you to make more money it allows you to stay in the game longer a few words of advice that I want to leave to you guys you know depending on what stage you're at understand there's two stages right uh one stage is a Trader that's trying to find his or her way they're trying to find profitability and second is a Trader that has found an edge has found some profitability but they're trying to scale up I'm assuming most people are in stage a if you're in stage a guys keep your risk consistent Focus on R don't increase your risk size trying to find an edge and your job here is to just stay alive just be able to take as many trades as you possibly can with the least amount of risk least amount of exposure this is where you want to get practice in where you want to test your strategies test your setups and just stay alive simple as that if you're in Stage B this is where you have to be able to identify what trades require me to put on a little bit more size how do I increase size when it's needed how do I decrease size when markets get difficult how do I kind of become objective to that right moving on if you follow me if you're on my YouTube I don't want you guys to have the mindset of I made $2,000 I don't care you shouldn't care what did this person risk if you talk about a trade moving on just wire yourself to to be this way I made a 2.