okay folks welcome back this teaching is gonna be specifically dealing with considerations and risk management this module hopefully will be a little bit more of a server reminder about how we should be looking at risk and how we can manage risk to survive and have longevity in our trading all right maybe you had this in mind when you first got into the trading after all the guy that sat down with you before told you hey this meth is so good you risk 10% of your equity it's gonna make you money okay if you have equity
balance of $10,000 you're gonna risk 10% now the first loss you assume guess what you just took out 1,000 our loss okay system says continue risking 10% so what do you do you get anything you take the next rate bang you hit with a 900 hours your equity now sits at eight thousand one hundred dollars three losses you hit with another a-huntin dollar loss bang your accounts not seven thousand two hundred ninety dollars this goes on for what could easily be seen in anyone's trading eight string loss eight string loss that is absolutely realistic guys
I don't care how good a trader you are you're going to get this upside your head one day and you need to be prepared for it if you're gonna risk 10% of your equity simply because you think you're gonna be hitting it on the next trade and you've been in drawdown there's a psychological impact that traders go through and we more or less deny the technicals that may be indicating that we're in a a trade that's not gonna pan out but we won't let go of it we start armwrestling with the market because hey you
know we're gonna be right and it's gonna feel so good when we are and we can give the middle finger not to be crude to the screen you know cuts at the screen you know say I got you I got my money back everybody wants to have that tough you know that that feeling of conquering the market and beating the guy that took the money from you last time everybody wants to go into the end zone slam football down and do their victory dance and all that but that doesn't work in this business and they'll
hand you your head on a platter if you give them the opportunity to take your money in a lot of it they're gonna be more than happy to take it from you if you just take an eighth loss streak here and your equity of $10,000 your count draws down five thousand two hundred seventeen dollars that's fifty two percent fifty two percent folks you think you can take eight trades in a single week the way some of you guys on these forums trade this could happen in a day now I'm not saying that most of you
guys aren't risk that are risking 10 percent you know but there are some neophytes to come into this business and think they're gonna be able to do it and I'm sorry but you know maybe you'll come off the gate make a couple wins and think man yeah I'm risking 10 percent and look it's it's really working out well but man I'm telling you this that cycle leads to destruction all right just eight trades look at this if you have eight losses you're crushed that's that's a huge draw down not not to mention the emotional impact
and your mental equity because not only are we trading with real tangible money currency in our account that equity base is not limited to stitute a dollar terms you have an equity Mont amount of money in your mind what you're really willing to absorb in risk you may have put $10,000 on account but man you don't really want to be losing 4,000 of it so what are you really trading with $4,000 that's your mental capital so we're gonna talk more about that when we get into wealth building money management but for now understand that risking
10 percent absolutely should be no-brainer for you you don't do that okay maybe you're so turned off by ten percent but hey you know you're not too afraid of taking risks to five percent for traders you know it's doable for you ten thousand dollars starting account okay first lost bang five on our loss now your account drops down to nine thousand five hundred dollars you do this for a couple series of losses you know at the fifth loss okay now your accountants down to seven thousand seven hundred thirty seven dollars but hey you you're gonna
make it back and you're not gonna Bend 5% risk on every trade well with the standard typical 8 string loss that can happen to anybody I'm not saying gonna have this once a month I'm not saying you gonna have it you know three times a year but it's gonna happen eventually if you are in this business at any length of time you will suffer a eight loss string it's gonna happen if you had the risk of 5% per tray starting with equity balance of $10,000 your equity will draw down to the tune of three thousand
sixteen dollars or thirty percent drawdown can you can you withstand that can you imagine taking a trait in a single week and being drawn down 30 percent let me tell you something I have done that I have done that okay and it is absolutely demoralizing because if you come out the gate strong thinking yeah man I'm gonna I'm gonna tear it up oh yeah you're gonna tear it up all right you're gonna tear up your account okay and you're gonna sit there and you'll be depressed for the entire weekend you're gonna go over possibly adding
more money when that's not the answer the answer is is controlling the amount of money that you put up and controlling yourself it's very difficult when you're in a period of drawdown if you're a new trader I'm talking from experience okay when I got involved with commodities I was trading you know five and six seven contracts of Chicago portrayed wheat and really my balance really should have been working with one madamn contract and I'm not gonna go into contracts and specifications for commodities but I'm just saying that I was over leveraging and the worst part
of it I knew I was over leveraging and when I was losing it didn't hurt enough I was going to be right I was imposing my will in the market and I'm telling you you will lose doing that it will hurt you doing that you don't gain anything from that except for misery and depression trust me I know okay so 5% risk is absolutely too much it's insane don't do it all right now let's look at the typical traders thought going in this is the standard mentality of all traders if you read it on all
the farms all the books we all say and I preached it to don't risk any more than portrayed alright okay we're gonna look at trader one up here at the top okay you have one trader starting with an equity balance of $10,000 and he's gonna risk 2% per trade and he runs into the inevitable eight string loss it's gonna happen well the account draws down after eight losses 1318 dollars total percentage drawdown 13% yeah you could probably withstand that I mean most traders could absorb that certainly new trades because they're in there invincible and they're
eventually going to be in the next streak where they make 100% accuracy so this is absolutely you know within the realm of comfort for most people if they have a ten thousand dollar equity balance and the only drawdown you know 1,300 bucks most people can absorb that but let's flip the script for a moment look at trader - okay he starts with $10,000 - and he's starting with 2% risk watch what happens his first loss at 2% is 200 hours suddenly he has a problem he has absorbed a loss something's gonna take place in this
traders mind that didn't take place in the first traders mine so his next trade he only loses 98 dollars but it's still a loss so the next trade he takes is what a loss of $48 look at just after three losses the difference in terms of equity where are we at essentially in the same neighborhood but look what happens over the period of the eight losses trader - after eight string loss his account draws down five hundred thirty-eight dollars total percentage draw down five percent do you see a difference there what do you think trader
- did differently that trader one didn't do number one he identified the fact that he's not perfect he identified or she rather in deference to the ladies that are watching this aria oh sorry gals ii trader here in our case study when he absorbs a loss okay he only takes one to do this the first loss immediately he cuts his risk in half so no longer is he risking 2% so now he has four all down to two hundred hours so he risks when the next trade when his account equity is at $9,800 he's gonna
risk 1% per trade now he assumes another loss does he stay at 1% absolutely not what does he do he drops down to one half of 1% so his next trade he has a loss $48.50 god you can take that if you got 9700 in your account and you can lose $48 you can lose 50 bucks you're not losing sleep over that if you could use if you lose sleep over that type of loss with the equity balance of nine thousand seven dollars stop trading it's not for you go go bet at the horse races
and you can play lottery something like that but i'm telling you you have to assume some kind of risk you know this goes along with everything that's been discussed at the beginning of the disclaimers i mean you have to understand you're gonna lose money in this business and if you're not comfortable with losing money on a consistent basis where you're not perfect bottom line is stop trading okay i have losses you're gonna have losses too I can't teach you how to trade perfectly without losses no one can you're not gonna be able to find it
and if that's the Grail you're looking for it doesn't exist trust me it doesn't exist because I'd pay everything I have for and it's not there trust me so let's keep this train rolling here okay after he drops his equity risk to one half of one percent okay he has another loss the fourth loss okay forty eight dollars and twenty seven cents well he takes another loss he stays at one half of one percent look what happens at the end of his eight losses he's got a huge amount of his starting equity still at his
disposal and he suffered eight losses he hasn't had one winning trade yet now contrast that with trader one this guy he's down thirteen hundred bucks trader - he's only down five hundred and thirty-eight dollars the 5% drawdown is absolutely tolerable in anyone trading I mean you're gonna you're gonna suffer five percent good grief five percent you know that's what you're trying to make you know in a day some some of you guys that are trading you have to control your risk okay if you have a loss cut your risk if you have another loss cut
your risk trade and drop down to one half of one percent now if you have five or six trades then you've lost that half of one percent drop it down to a quarter percent okay whatever suits your risk appetite that's what you have to do but you have to go the other way you do not you do not average downloads you don't take well I lost 2% mean risk for now because if it all it takes is one trade and I'll make that back and pay maybe even make the 2% I was hoping to make
on the previous trade that lost or I only have to make you know half of what I lost in terms of pips on the last trades I risk forcing don't do that guys I've done it I'm telling I've done it granted I'll go give you this and I'm gonna be fair there's been times where early on I did it and it worked out in my favor but when I tried it later on it crushed me and it never gave it back to me it took more and it took more and it took more and I'm
telling you it is a loser's game trust me I know this by firsthand experience it never pans out over time doesn't happen ok so just don't do it if you have a loss cut your risk cut your risk cut your risk all right now let's assume let's stretch this out a little bit all right trader one had a drawdown of $1,300 okay on eight losses not one trade was a winner all eight were losers well look at trader two let's assume for a moment the guy hits and he's got a bad run you know he's
got some problems in his personal life you know nine to five getting him you know stressed out his boss is driving him crazy you know he's rushing trades he's not following the system he's not feeling well he's spending too much time in the forms and not really studying the charts it's something that's keeping him from being disciplined okay he's not hitting on all four you know on all cylinders something's wrong maybe he's got a system doesn't work maybe he's a bent he hasn't abandoned his bad habits bottom line is is he's not me a profitable
trade yet look what traitor two can absorb he can absorb three times the amount of loss that traitor one can following the same approach the first loss risking 2% he only draws down the $9,800 second loss risking 1% now cuz he's trimmed back to his risk he only loses 98 dollars his drawdown goes to 97 hundred dollars in his account now he's at 1/2 of 1% and he stays there ok all the way through up to 24 losses this gentleman or young lady could have a loss string of 24 losses and still be less than
the first trader think about that this guy or gal can have 24 losing trades and still have lost less than the first trader on a trades because he didn't augment his risk exposure you have to control the amount of risk in your account if you do not do this no one's doing it for you I can't do it for you your wife can't do it for you your husband can't do it for you the kids can't do it that a broker certainly ain't gonna do it okay so you have to have this in your plan
it has to be mounted on the wall tattooed on your hand it's got to be on your forehead so when you see yourself in the mirror you see this all the time control risk I can't stress it enough nobody talks about it enough and you have to do this you absolutely have to do this okay this will give you the the viagra effect not to be crude but it gives you the staying power you have to be able to absorb losses so I'm telling these banks they're ruthless as good as my methods are I still
get slapped around sometimes okay it's gonna happen now granted when we drop down to half a percent okay we're not probably going to make a whole lot of money coming back out of it sure that's fine but there's a there's a strategy that we're implying that goes a long way in terms of a profitable career okay if you can absorb 24 losses and only have 12% drawdown you're controlling risk there's not a trader out there okay that can beat their chest and say I've been trading for five eight ten years okay and I've never had
an eight-string loss okay I'm telling you that they don't don't that's a unicorn they don't exist okay so you're gonna have strengths or losses I'm showing you how even I've never had twenty four losses I'll give you that I've never had a string of 24 losses but I've given you a shield okay I've given you a mindset when you step out in that arena and risk your capital and you risk your money this is your only defense this right here okay it's not the trade signals okay it's not the amount of money you put in
the account to start with it's the amount of money you put up because whatever you offer them in your hand open palms they're gonna take it if they can so if you give them a large percentage of it all you're doing is enticing more interest in taking it from you okay so the more of the story is if you have a loss cut your risk if you look if you have a loss again you cut your risk and you drop down to 1/2 of 1% okay and you stay there until we have a turn in
equity and when you start making money and start being profitable okay there's a way of going back to the original risk exposure say your maximum risk exposures 2% per trade okay how do we how do we compensate for that how do we get back to that that point well let's talk about that now how how do we how do we go forward with this information okay well when we experience a loss the first thing you want to do is number one reduce risk that's the absolute first thing you think in your mind not let me
get that kinda try to get my money back no you cut risk why because you already have a state of mind where you feel you're victimized okay I don't care how long you've been trading losses still haven't have an impact okay I don't like losing I hate losing okay because my method wins more than it loses when it happens I don't like it okay but I don't beat myself up about it and go in I said well you know I lost $500 I'm gonna get intrigued and I'm gonna try to you know make $2,000 on
the next trade because I lost five I want to get four times as much money back I wanna do it in half the time I don't think like that anymore I did I'm gonna give you this I did think like that years ago but I don't need to do that anymore okay and you don't need to do that now if you haven't adopted that bad habit this is hopefully keep you from doing it so if you take a loss of 2% the next trade you will only assume 1% risk now should this trade result in
a loss the next trade will only assume 1/2 of 1% okay you will only risk 1/2 of 1% per trade until you have made at least 50% of the drawdown of the equity dip from the trade risking 1% of equity okay so in other words the trade that you lost when you were risking 1% whatever that amount is let's say it's 500 bucks you need to make $250 risking 1/2 of 1% before you can trade up to the 1% risk per trade tier okay now you're gonna risk 1% per trade until you make at least
fifty percent of the equity dip that you used when you risked 2% per trade okay so again if you're risking 500 hours when you were risking 2% at 1% risk you need to make at least $250 before you go back to risking 2% if you lose you go back to that system again you drop cut it in half cut it in half cut in half and now you have an opportunity to step back and say okay I can take some blows I can get knocked around but I'm not getting taken out of the game okay
so now hopefully hopefully with this presentation you can breathe there's a way of doing it guys okay and this is how it's done you can't stay in this business without controlling your risk that's the morale let's stick to the game plan stick to the method of controlling risk using this approach and I absolutely guarantee okay you want the holy grail this is the holy grail this is it you have to have a shield in this business if you don't your money's going to come to me it's going to go to the central banks it's gonna
go to the guys that know how to do this okay because I'm gonna be in the game years from now you know and I'm gonna still apply this approach when I have losses this is how I do it this is what kept me in the game as long as it has been it's going to be a concept that I hold closest to me because this is more important than my entry signals this is more important than my access this is the absolute key in cornerstone to long-term success in careers in training [Music]
