The ONLY video on risk management you'll ever need

95% of traders should be profitable. Almost everyone who puts in the time should be able to profit in the markets. The setups repeat and the math is simple, but it's backwards. 95% of traders are not profitable. They invest countless hours into learning, backtesting, trading, and they get nothing out of it. Even worse than nothing, they get a negative return. Now, most of this comes down to one thing, risk management. Everyone's given the same advice and none of it makes sense. And one of the worst ones is that you should be risking 1% of your account per trade. Now, this sounds like something smart and responsible to say, which is why every trading educator in the world will say it on repeat without even thinking. But when you actually look into it, you realize two things. One is that no one actually follows this advice the way it's supposed to be followed. And two, even if they did follow it the way they're supposed to, it would still be account destroying advice. This is the trap 95% of traders fall into. It's no surprise that following the most common advice gets you the most common result, with the most common result being failure. But profitable traders have broken out of this trap. They don't just blindly follow advice. They actually look at their position logically and structure their risk in a way that gives them an unreachable advantage over everyone else. So in this video, I'm going to give you that exact framework, the same one I use to grow and scale exponentially without needing to worry about blowing up. And just a quick disclaimer before we start, this isn't financial advice. I'm just showing you what works for me. If you decide to use it, trade at your own risk and size properly. So let's get into it. Now, all successful trading is split into three parts. You have the edge, which is the strategy you use to profit from the market. Then you have psychology, which is your emotions, thoughts, and decisions while trading that strategy. Then finally, you have risk management. This is about how well you manage your capital while trading your strategy. They're all connected to each other, and you need all three on point to be profitable. But the issue is, everyone focuses on either just the edge or edge and psychology. And they completely neglect risk management or just give it basic rules, like the 1% rule, without putting much thought into it. But this is a critical mistake. Risk management is the lever that determines how profitable you are. If you don't have a good risk management system in place, then every trade you take is suppressed. It's a muted version of what it should be. You can have a great strategy, but your trades and effort basically go to waste. On the other hand, if you have a great risk management system in place, then every trade you take is amplified. Your equity curve will grow much quicker and will compound at a much faster rate. It's the same strategy and the same effort, but completely different results, especially over the long term. That's the power of risk management. So let's break down how to build a great risk management system. And by the way, if you're stuck in the cycle of finding a strategy, trading it for a few weeks, then watching Tilt tear it apart, I made something that'll transform your trading. The Tilt Proof Trader Guide. The system I use to trade without tilting, without second guessing, without self-doubt and chaos. The best part is, I'm giving it away for free. The link is in the description. My system will make way more sense after you see how it all connects. Now, the key to this is something called a risk threshold. This is a tool that we'll use to actually determine how to manage our risk in a way that protects us while we're growing exponentially. And the idea behind the risk threshold is simple. It's simply the Goldilocks zone between risking too little and therefore growing at a slow pace or risking too much and blowing up easily. It's the point where we don't run a high risk of blowing up, but also risk enough per trade to grow quickly for our account size. Because you often get these blanket statements that don't have any thought or logic behind them. Things like risking 1% per trade or always aiming for at least a two to one risk reward or setting daily targets. But let's actually strip that down and see what it looks like. So let's say we have a $10,000 account. If we risk 1% per trade, that would mean risking $100 per trade, right? And of course the risk is percentage based so that number would change as the account grows or shrinks. If it drops to $9,000, then we would only risk $90 per trade. If it goes up to 11,000, then we'd be risking $110 per trade. Now let's evaluate our risk threshold with this level of risk. We need to ask ourselves how many losing trades in a row would it take for us to blow up? This is the worst case scenario where every trade we take happens to be a loss. Our risk threshold is how many trades we can take like this before we lose our account. And the worst case scenario doesn't mean that it'll happen or that it's likely, but it shows us how robust our strategy is because if you're risking $5,000 per trade, well, your risk threshold is very weak. You can grow very quickly if you're successful with your trades, but it only takes two losing trades to take you out of the game. Now, when it comes to percentage based risk, like 1% per trade, this is a little tricky. Each loss is 1% of your current balance, not your original balance. So it keeps shrinking, but never hits zero. After 50 losses in a row, you'd be down to about 6,050. After 300 losses in a row, you'd be down to about 490. So you'd never technically blow up, but you're also not getting anywhere. Now for simplicity's sake, we'll just keep risk at $100 per trade. That would mean we can take a hundred losses in a row on a $10,000 account. And this is where you need to ask yourself a very important question. When are you ever going to take a hundred losses in a row? What are the chances of that happening? I mean, I'm not even sure you can do that on purpose if you wanted to. So taking a hundred losses in a row is on the other end of the spectrum. It's a very strong risk threshold, but it's actually too strong. There's no need for you to risk that little. Let's say we double the risk to $200 a trade. That means we can now lose 50 trades in a row before blowing the account. So now you got to think when was the last time you lost 50 trades in a row? Because here's the thing with a standard 50% win rate strategy, which is actually quite modest. The chance of you losing 100 trades in a row is this much. I mean, yeah, I would be pretty comfortable trading with these odds. And with that same 50% win rate strategy, the chance of you losing 50 trades in a row is this much. So yeah, that increases our risk a little bit, but I would still be very much comfortable trading with these odds. I'm sure you would too. And the thing is, in this case, you're risking twice as much. So you're growing twice as fast. And you're doing that while your chance of blow up increases from essentially 0% to essentially 0%. So risking $200 per trade is much better than risking $100 per trade, but our risk threshold is still too strong and our blow up odds are still extremely low. So we can do much better than that. Now risking half our account per trade carries a 25% blow up risk, which basically means it's guaranteed to happen and risking only 1% or 2% per trade carries a blow up risk of basically zero. So we want to work toward a middle point where we can risk the most and grow the fastest with our blow up risks still being negligible. And with a regular 50% win rate strategy, we know that two trades in a row is too risky while 50 trades in a row is not risky enough. Now the sweet spot for this is 10 to 20 losses in a row. On the riskier end of 10 losses in a row, it only has a 0.1% chance of happening. That's safe enough for us to operate. And this is going to be risking about five to 10% of your account per trade. And if this number feels intimidating, well, it shouldn't be. It means your account is far too large. And if that's the case, just use a smaller part of your account and risk the five to 10% on that account. That way you still get a low blow up risk and quicker growth. But even on the off chance that you do happen to blow up, you only end up blowing that smaller part of your account. And good thing you did in that case, or it's very likely that you're losing streak would have spread to the rest of the account if it could. But either way, in all cases, risking something like 1% per trade is too low. And you might think risking a low amount isn't really an issue because it's still safe and you'll grow at a much lower rate. You don't see any problem with just risking lower, but here's the issue. Damage doesn't only come from risking too much. It also comes from risking too little because if you're risking a very low amount per trade, you'll know it consciously or subconsciously. And even if you're doing well, you'll end up feeling that you could have gained a lot more. And that feeling will seep into your charts. You'll try trading more or increasing the risk for a single trade. You'll be quick to break your own rules because you feel trapped and unsatisfied. And that's the problem. You become anxious and inconsistent. And the number one thing you need to succeed in trading is consistency. Once that's out the window, it's basically impossible. So you don't want to risk anxiety slowly creeping up on you. You want to risk an amount that you're satisfied by so that you stay consistent with it and don't break the rules. And that amount is in the Goldilocks zone of our risk threshold. That's the formula for a risk management system that lasts both financially and psychologically. Once you have that down, you just need a reliable mechanical strategy to go along with it so you can scale cleanly. And that's exactly what the LCE model is. It's the system I use every day. And I break it all down in this video that I'll link right now. And if you haven't grabbed it yet, don't forget the Tilt Proof Trader Guide. Drop a like if this helped and subscribe if you want more. I'll see you in the next one.