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Risk management is a love letter to your future self. And you're the only one responsible for delivering it. When I say risk management is a love letter to your future self, what I mean is this.
Learn essential risk management strategies to protect capital, control losses, and trade consistently for long-term success.
Key Takeaways
- Protect your capital first; do not risk losing it quickly.
- Define risk clearly before entering any trade to avoid emotional decisions.
- Keep losses small and consistent to allow your trading edge to work.
- Use strict daily limits on losses, profits, and number of trades to maintain discipline.
- Consistency in risk management leads to consistent profits over time.
What the video covers
- Risk management is a commitment to your future self, ensuring longevity in trading by protecting capital and controlling losses.
- The primary goal in trading is not to avoid losses but to keep them small, controlled, and consistent to allow your edge to play out.
- Protecting capital is the first rule of trading; losing money quickly leads to being unable to continue playing the game.
- Define your risk before every trade to avoid emotional decision-making during trades.
- Never risk your entire account on a single trade to prevent catastrophic losses.
- Use guardrails such as max daily loss, max daily profit, and limits on total trades per day to maintain discipline.
- Consistency in risk leads to consistency in profits over the long term.
- Accept uncertainty and focus on executing your edge over a series of trades rather than trying to win fast.
- Discipline and predefined rules reduce emotional trading and improve execution quality.
- Playing the long game by preserving capital is essential for sustained profitability.
Chapters
- 00:00Introduction to Risk Management
- 01:36The Goal of Trading: Controlled Losses
- 03:06Consequences of Undefined Risk
- 06:14Playing the Long Game and Capital Preservation
- 07:51Executing Your Edge Amid Uncertainty
- 10:16Setting Guardrails: Max Daily Loss and Trade Limits
- 19:00Discipline and Consistency in Trading
- 30:38Conclusion and Final Thoughts
Full Transcript — Download SRT & Markdown
Speaker A
Every single time you protect your capital, every single time you keep your losses small, every single time you follow your trading rules, you are doing something today that your future self will thank you for.
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Every single time you protect your capital, every single time you keep your losses small, every single time you follow your trading rules, you are doing something today that your future self will thank you for.
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Good risk management does just that, right? It allows you to be alive in this game long enough so that you can win big, so that you can win consistently.
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Because good risk management keeps you alive in the game. Just think about it. The only way to win the game is to have chips to play with. But if you run out of chips, you literally cannot continue playing the game.
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And the key here is nobody else is going to do that for you. Nobody is coming to save you. You're the only one who has to deliver it through your actions, your discipline, and your decisions in real time.
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Good risk management does just that, right? It allows you to be alive in this game long enough so that you can win big, so that you can win consistently.
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trader in 6 months. I want to buy the Lamborghini in a year from now.
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It helps you preserve your capital, your confidence, and your ability to keep executing your edge.
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Because in trading, the goal is not to avoid losses. The goal is to keep them small, controlled, and consistent long enough for your edge to play out.
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And the key here is nobody else is going to do that for you. Nobody is coming to save you. You're the only one who has to deliver it through your actions, your discipline, and your decisions in real time.
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So, this lesson incredibly important, right? So, make sure you actually internalize these principles which I'm about to share with you and apply this risk management framework that I'm about to show you. All right. So, first of all, let's talk about risk management
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Which is something that I always say to my students. Right? Because everybody is thinking about how to get rich fast, how to make as much money as humanly possible in the shortest amount of time. I want to become a millionaire
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First rule is to protect capital first. All right? So, that's the first rule right there. Is to protect capital first.
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trader in 6 months. I want to buy the Lamborghini in a year from now.
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And then rule number two is to never forget rule number one." Your first job as a trader is not to make money. Is to not lose money.
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Buddy, the fastest way to blow up is to try to win faster. The fastest way to become profitable is to try to lose faster.
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Right? Like I said earlier, if you run out of chips, you cannot continue playing. And if you cannot continue playing, then you cannot win the game. So, the only way for you to actually win the game long-term, not
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Because in trading, the goal is not to avoid losses. The goal is to keep them small, controlled, and consistent long enough for your edge to play out.
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not blowing everything on one trade. You're not risking your entire account on one trade. Because if you do just that, all it takes is one loss to wipe you out. Right? All it takes is one loss to get you out of the game.
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That's the holy grail right there. It's to survive in the game long enough for your edge to play out so that you can actually win, so that you can make money consistently.
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Before you enter for a buy or sell the position, you always need to know exactly how much money are you willing to lose.
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So, this lesson is incredibly important, right? So, make sure you actually internalize these principles which I'm about to share with you and apply this risk management framework that I'm about to show you. All right. So, first of all, let's talk about risk management
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If you do not define the risk before the trade, emotion will define it during the trade.
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principles. These are like the golden laws, right? These are the golden rules, right? You have to follow these rules in order for you to really make sure that you manage your money well.
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brand new MacBook. But what you failed to take into account before you enter for the trade is how much you could potentially lose if this trade does not go as planned. So, as a result you enter for the trade,
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First rule is to protect capital first. All right? So, that's the first rule right there. It is to protect capital first.
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Now you're down $2,000. And now you're down $5,000. And next thing you know, you blew your entire account on one trade because you haven't clearly defined your risk before every single trade.
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Warren Buffett famously said, "Rule number one is not to make money. Rule number one is do not lose money.
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And it's very important for you to actually define how much money are you willing to risk on any given trade before actually entering for the trade itself.
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And then rule number two is to never forget rule number one." Your first job as a trader is not to make money. It is to not lose money.
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up just because you lost a trade and now you want to make back the loss.
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It's to protect your capital so you can stay in the game long enough for your edge to play out.
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All right? So, another reason to keep your risk consistent is so that you can keep your profits consistent. Think about it, right? Consistent profits require consistent actions.
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Right? Like I said earlier, if you run out of chips, you cannot continue playing. And if you cannot continue playing, then you cannot win the game. So, the only way for you to actually win the game long-term, not
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because your risk is variable, it's always changing, because of how you feel, then guess what? You cannot expect your profits to be consistent.
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just one time or two times, but long-term, is to play the long game. And the only way you can play the long game is if you have capital to play with, right? So, protect your downside, protect your capital, and make sure that, you know, you're
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lose, you are only losing this small amount of your account. And every single time you win, you are making this much amount of money, which outweigh your little losses.
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not blowing everything on one trade. You're not risking your entire account on one trade. Because if you do just that, all it takes is one loss to wipe you out. Right? All it takes is one loss to get you out of the game.
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Next is to use guardrails to control yourself. Set hard rules for max daily loss, max daily profit, and total trades per day.
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Rule number two, principle number two, is to define your risk before every single trade.
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Right? But, you need to do this. Right? You cannot just rely on your emotions, you cannot just rely on your gut feeling in the heat of the moment. You have to define rules. You have to have like a
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Before you enter to buy or sell the position, you always need to know exactly how much money you are willing to lose.
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are less likely to deviate from your trade plan. You are less likely to make stupid decisions in the heat of the moment, which means you are less likely to take unnecessary the Right? Play stupid game, win stupid prizes. That's it.
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Is it $100? Is it $1,000? Is it $500? Is it $300? Whatever it is, you need to clearly define a risk before every single trade.
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Risk management works when you accept uncertainty and focus on executing your edge over a series of trades.
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If you do not define the risk before the trade, emotion will define it during the trade.
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confluence trade, right? You are so confident in the trade idea, there's no way it could go wrong.
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What I basically mean by that is that let's say today you're obsessed with making money, right? So, you're thinking to yourself if you win this trade, you are going to make a thousand bucks and then you're going to be able to buy that
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Well, because the market is random, right? At the end of the day, anything can happen in the market.
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brand new MacBook. But what you failed to take into account before you enter the trade is how much you could potentially lose if this trade does not go as planned. So, as a result, you enter the trade,
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Losses are part of the trading. It's just a cost of doing business, which means that you got to get used to it, right? You got to get comfortable with it.
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price starts going against you, you're down $500, you're down $700, price keeps going against you, your heart keeps on beating faster and faster, your palms start sweating as you watch your loss compound, and now you're down $1,000.
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It's not about how often you lose. It's about how much money you make when you are right, and how much money you lose when you are wrong.
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Now you're down $2,000. And now you're down $5,000. And next thing you know, you blew your entire account on one trade because you haven't clearly defined your risk before every single trade.
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That's the secret right there. I lose money, Warren Buffett lose money, every single person who trades lose money.
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Okay? So, always make sure you only trade with money you can afford to lose.
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earth has a 100% win rate. Which means that you will incur losses. So, like I said, it's all about keeping the losses small. All about minimizing the losses and maximizing the profits.
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And it's very important for you to actually define how much money you are willing to risk on any given trade before actually entering the trade itself.
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This is how you should approach money, right? It's to always have the survival mentality. Before you can think about thriving, you should first think about surviving. You cannot thrive if you don't even survive in this game. Right?
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Next is to keep your risk consistent. Do not change your risk based on feelings, based on confidence, or based on emotions, right? The last thing you should be doing is sizing up because you just got a winning streak. Or sizing
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Because the hidden cost of not adhering to your risk parameters is emotional. It's emotional. And the reason why I say this is because let's say you lose money on your first few accounts, right? Like you lose money trading, no matter how hard you try. You
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up just because you lost a trade and now you want to make back the loss.
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Now you will have a lower morale, and now all of these losses will fit into your identity.
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Do not trade your emotions, trade the market. Okay? So, make sure you keep your risk consistent. Consistent risk leads to cleaner data, more stable emotions, and better long-term execution.
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cause of losses. That's the hidden cause of not adhering to your risk parameters. When you do not follow your risk management, yes, your account will suffer, but more importantly, you will suffer. Right? You will suffer.
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All right? So, another reason to keep your risk consistent is so that you can keep your profits consistent. Think about it, right? Consistent profits require consistent actions.
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All right? That's what risk management is. It's about just adhering to these rules even when you don't feel like it. Especially when you don't feel like it.
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If today you're risking 5% of your account, tomorrow you're risking 3% of your account, next day you're risking 2% of your account, sometimes you're going to lose 5%, sometimes you're going to lose 2%, sometimes you're going to lose 3%
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figures to now multi seven figures. It's the same framework that got so many of my students funded. It's the same framework that got most of my students to the stage where they are consistently profitable and they're making anywhere from 5K a month
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because your risk is variable, it's always changing, because of how you feel, then guess what? You cannot expect your profits to be consistent.
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First of all, risk a fixed percentage per trade. All right? Like I said, keep your risk consistent.
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Right? Like mathematically, the only way for your profits to be consistent is if you have your risk consistent. If you're risking the same amount of money every single trade, and every single time you're wrong, every single time you
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All right? Because if you risk 1% on each trade, guess what? You can be wrong 100 times 1% * 100 before you actually blow your entire account.
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lose, you are only losing this small amount of your account. And every single time you win, you are making this much amount of money, which outweighs your little losses.
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So, 1% is pretty good. But, what I found based on data is that 0.5% is pretty decent as well. 0.25% is pretty decent as well.
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Mathematically, long-term is going to play out, it's going to work in your favor. Right? So, you need to make sure you keep your risk consistent, so that you can keep your losses small, and you can have big wins.
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And I'm still risking 1% a trade. All right? Because that's the amount of money that I'm willing to lose.
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Next is to use guardrails to control yourself. Set hard rules for max daily loss, max daily profit, and total trades per day.
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I'm probably not going to be risking 1% on that the trade itself because 1% on a $10 million account is a lot a lot of money. So, that That where I might consider risking 0.5%.
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I'm going to show you how to do this later. I'm going to show you how to actually implement this into your trading system later.
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What is the amount of money that you are willing to lose on any given trade?
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Right? But, you need to do this. Right? You cannot just rely on your emotions, you cannot just rely on your gut feeling in the heat of the moment. You have to define rules. You have to have like a
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have 100 bullets in your gun. But if you risk 0.5% on on a trade now you have 200 bullets. You have twice the amount of trades right?
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framework to prevent you from blowing up. Because good risk management is not just about avoiding big losses. It is also about preventing emotional decisions. Okay? When you have a very clear defined rule that you stick to on a daily basis, you
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is the right way to go if you're more conservative consider risking 0.25 or even 0.5% of your entire account on any given trade.
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are less likely to deviate from your trade plan. You are less likely to make stupid decisions in the heat of the moment, which means you are less likely to take unnecessary risks. Right? Play stupid games, win stupid prizes. That's it.
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get big losses. It's just part of being a human. You hate to be wrong. You hate the feeling of uncertainty.
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Number five is the thing in probability, it is not certainty. No setup is guaranteed. Losses are part of trading.
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And if you don't have a gut rule that prevents you from making stupid decisions, taking stupid trades. What tends to happen next is that you're going to revenge trade. You're going to try to continue trading to make back the
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Risk management works when you accept uncertainty and focus on executing your edge over a series of trades.
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And when you do that you are no longer trading the market. You are simply trading your mental well-being.
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So, like what I mentioned right here, no matter how confident you are, no matter how many confluences you have attained from the market itself, you got a liquidity sweep, market shift, freaking chart patterns, whatever, right? The most
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And when you do that, the market is going to punish you. The market is going to punish you with a big loss.
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Next thing you know, you lose 1K initially. Now you take this other other trade, now you are down 2K. And then you continue trading and now you are down 5K. And then next thing you know, you you have blown your entire
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account. Because in the heat of the moment, the emotional part of your brain overpowered the rational part of the brain. As a result, you were unconscious. You don't even realize that you are actually emotional, but your emotions were driving your
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decision-making. And that's a very dangerous way to be trading. So you want to have like a max daily loss, right? So 2% to 3% of your account, right? So for example, if your account got 100K, if you lose 3K,
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assuming you're risking 1% on on any given trade, which means you lose three trades, you stop trading for the day.
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Okay, you stop trading for the day. You sit back, re-evaluate what's going on, journal that I trade, reflect, and then get back to the charts when you are ready mentally.
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Okay, so yeah, having like a max daily loss helps out a lot. And also respect your max drawdown. Usually 5% to 10% max before reducing size or pausing.
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So this one is quite simple if you actually stick to rule number one and rule number two right here.
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If you have a max daily loss and you have a fixed risk per trade, your drawdown shouldn't be anywhere more than 1%.
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Right? On any given trade. And if you have five different open positions, then you'll probably be like 5% max.
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Right? So drawdown is like the amount of money that you are going to rate before you actually go back into break even or profitable. Right? So I'll say a good amount is like 5% to 10% before you're reducing size or pausing. So,
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once again, if you stick to these two and you have rule number four, you should be fine. Which brings us to rule number four, which is to limit total trades per day. Do not let one day turn into emotional over-trading. Like I say,
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your job is to make sure that you minimize your losses. And you can minimize your losses in two ways.
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Quali- quantitatively, right? Which is just ensuring that whenever you lose, you lose a little bit of money and that is adhering to your risk per trade.
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And also, another way is to limit the number of losses you incur on any given day.
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And that's what two, three, four is about, right? It's about just ensuring that the most amount of money that I could lose for the day is 3% of your account or even 5% of your account. And once you
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hit that, you're done. Or, you know, once you take three trades for today, you're done.
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Okay? So, even if you win those three trades, you still stop trading for the day because three is three, right?
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Doesn't matter whether you win or lose those three trades. As long as you've taken three trades, you stop trading for the day.
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This prevents you from over-trading, it prevents you from revenge trading, and most importantly, it prevents you from giving back the profits that you've made back to the market.
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Just think about it. How many times have you take a Let's say you win a trade, right? And that's another thing that I believe, right? I don't think the hard part is losing. I think the hard part is
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winning. Because when you start winning a trade, now your ego starts stepping into your decision-making. Now, you start feeling overconfident. You start feeling this euphoria. And now you are inclined to just disregard the risk management because you're on top of the world,
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right? You feel like you're the king of the trading industry. You're the best trader in the entire world. Next thing you know, you continue trading and on the next trade itself, you end up giving back the profits that you have
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made back to the market. And in the next trade, you lose money and now you're back to square one. Or even worse, you are in a loss than you started in the first place.
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Right? All because you don't have like some form of rule to really just ensure that you limit the amount of trades that you're taking on any given day.
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Last but not least, is only risk on A quality setups. Protect capital by being selective, not just by sizing smaller.
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Okay? So, you want to make sure that you're protecting your capital by ensuring that you are only risking it on the setups that are worth taking.
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On the setups that has a high chance of working out. And that is the A+ setups.
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Right? Which is something that we talked about in the last few lessons, how to define an A+ setup. So, those are the setups that is worth deploying the capital for. Okay? Because those are the setups where, you know,
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once again, price is not going to suddenly go in a way because those models appeared, but it has a higher chance of working out compared to if you take a setup that is a B setup or like a C setup. Now,
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understanding risk management is one thing. Actually following it real time is another thing. And that's where so many traders struggle. They know what they should do, but they don't do it because in the heat of the moment, emotions
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cloud their judgment. In the heat of the moment, they forget their trade management. They forget their risk management rules. They ignore it.
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And that's exactly why we built all of these risk management features inside Edge Flow, my trading super app.
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Once again, most traders already know what to do, but they just don't do it.
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Edge Flow helps you close that gap by turning risk management from an ideal, from a rule you have written down on a paper, into a trading system. You literally have no choice but to all of these trading rules that I just showed
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you here into your trading system. Let me show you what it looks like. So, the first feature that we have is the auto risk calculator. Right? So, the first step is to make sure that every single trade is sized properly. So, for
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example, today if I were to enter a trade on EUR/USD, I come in here and I press trade. This is where the minute I place my stop loss, EdgeFlow automatically calculate the lot size for me based on my stop loss distance, based
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on my account size, and my risk per trade. All right. So, in this case, I'm risking 1% per trade because that's the guardrail that I've set for myself in my settings. So, if I come here and I place
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my stop loss at let's say 1.170 85, right? You can see my stop loss right here. Look, the lot size automatically get calculated for me. And it's automatically updating in real time based on the fluctuations of price. This
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way, I'm always risking 1% of my account on any given trade. All right. So, this is the very amazing sort of feature for me when I started using it because I don't have to go to another website, spend so much time
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trying to figure out my lot size. The system literally does it for me. And if you don't like to base the price of the stop loss, you can also place it in terms of pips. Right? So, for example, I want to have like a three pip
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stop loss. Boom, lot size automatically get calculated. Or even just like a one pip stop loss. Boom, lot size get auto calculated.
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Right? So, very useful feature to have. It pretty much reduces the friction that is needed for you to be disciplined.
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Right? For you to actually adhere to your risk parameters. Right? This way, you are no longer guessing a lot size or eyeballing your exposure. You're entering every single trade with a defined risk amount that matches your trade plan.
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Which brings us to the guardrails that we have right here. Okay? So, if you notice all of these guard rails, you can configure them in your settings. This allows you to have a max loss, a max profit target,
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and also the max trades per day, and also your risk per trade. All of these is what we call the guard rails. All right, so if you go to settings and you go to trading preferences, this is where you can set
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your guard rails. Like I said, you want to limit the amount of trades they are taking on any given day. So, this is where you can set it over here, right? If you want to take three trades a day, put that in. If you
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want to take two, put that in. Whatever it is, just put it in right here.
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So, once again, this is very important, right? Because this helps us reduce over trading, reduce impulsive trades, reduce bottom entries, reduce low quality setups that is outside our entry model.
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When you know you only have a limited amount of bullets, which is five in this case, you become much more selective.
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Now you are just thinking through every single trade before you actually enter for the trade itself.
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And that selectivity improve execution. Okay, so for example, if I set three right here, I'm only have three bullets for today. So, I want to be very mindful. I want to really make sure that I think through before I enter for the
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trade, because once I hit three trades, I'm done for the day. Another thing is the max daily loss, right? So, once again, this helps you protect yourself from turning one red day into a destructive day. Once your max daily loss is hit, that should be a
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signal to stop. This rule right here exists to protect you from revenge trading, emotional sizing, forcing setups after losses, and just digging a deeper hole for yourself.
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Right? So, once again, if this account that I'm using right now is a million dollars, right? So, if that's the case, my risk per trade is usually about 1%, so let's say I only want to be losing a
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total of 2% or 3% on any given trade, this is where I can just put the max daily loss as 20k or 30k or whatever I want to set for the day. And then once I actually lose more than 30k or near
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30k, this is where Edge Flow will automatically block me from trading. I will not be able to continue trading because my max loss has been triggered.
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So this way it prevents me from revenge trading. And also max profit which prevents you from giving back your profits back to the market. Right? Like I said earlier, the problem right here is with winning. A lot of traders, they
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make money early and then they keep trading out of greed, out of boredom, out of overconfidence and they end up giving it back.
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Okay? Sometimes the most disciplined decision is to stop after a strong session. Once you make money, know when enough is enough and just stop. And this got real right here allows you to protect a green day. Allows you to protect your profits
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and not give it back to the market. Right? So I usually like to set it at around like 5% to 10% once I hit 5% or 10% on any given day, I'm done for the day. Right? Like that's the most amount
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of money that I'm willing to uh make before I just stop because I know for a fact that if I go more than this amount, I will just end up, you know, making stupid mistakes and giving back the profits back to the market.
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And also like the risk per trade right here, like I mentioned earlier, this is where you can define how much money you want to risk on any given trade based on your account.
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In this case, 1% is where I usually like to risk. I can even go to 0.5% as well or even 0.25% and the lot size will automatically adjust by itself to match the risk.
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Right? So let's say 0.5% in this case right here. And this is where when you go and trade, you realize that the risk per trade has been changed to 0.5% and if you set a stop loss, you will see
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that it's a lot more lesser right now. Right? The loss is a lot more lesser.
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Right? Because once again, this is calculated based on the stop loss distance and based on the risk per trade. So all of these features that we have in place helps to reduce the friction it takes to trade in a disciplined
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manner. Okay, like if you don't have these guardrails in a system, it just make it a lot more difficult for you to become consistently profitable.
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Right? Because when you are trying to be disciplined, it requires a lot of willpower. It It requires a lot of mental energy.
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And when I'm putting that energy into trying to be disciplined, it's going to be very hard for you to actually just trade profitably. For you to just trade fast.
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So, with EdgeFlow, instead of relying on discipline in the moment, you literally build discipline into your environment.
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Right? So, once you hit the max trades per day, this trade button get grayed out. You are not allowed to trade. You can override it, but it will require you to input a reason. Same thing, if you hit the max loss, if you hit the daily
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target, you will not be allowed to trade. Right? So, this means that your slot sizing is calculated properly. Every single time you are risking the same amount of trade, 0.5% or 1% based on what you choose, which means that you will have a
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consistent risk equal consistent profits. Also means that your risk is always defined before the trade. Right? You are not scrambling around here thinking about, "Oh, what lot size should I use for this trade?" No, because it's automatically calculated for you.
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Once again, you have no choice but to like just stick to your risk parameters.
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Your daily loss has a hard cap. Right? So, once you hit this amount, you're done for the day. Your daily profit can finally be protected. Your total number of trades is controlled.
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Once again, all of these guardrails just makes it so much easier to stay aligned with your rules even when the market is moving fast. Most traders do not fail from the lack of knowledge. A lot of you guys watching this video right here
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already know about these principles. You already know what to do. Right? You already know that you shouldn't be risking your entire account on one trade because that's gambling. That's not trading.
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They fail from a of consistency. And consistency is so difficult to maintain when you are trading independently by yourself.
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But it becomes so much easier when your trading environment supports that discipline. So instead of relying on willpower or, you know, energy or your emotions or guesswork, your trading environment literally support that discipline, right? It literally build it into your system
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itself. So now you have no choice but to be disciplined on a daily basis. And like I said, consistent actions lead to consistent results. When you're consistent in terms of the way you manage your capital, it's only a matter of time till you see
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consistent profits. That's why Edge Flow is not just about analysis. It's also about execution and behavior.
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Because your edge is not in your strategy. Your edge is also in your ability to manage risk, protect capital, and stay disciplined over a large sample size of trades.
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Everything you need to trade profitably, everything you need to think, act, and feel like a professional trader is in Edge Flow.
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So if you want to get your hands on this awesome trading software, click the link in bio. Because at the end of the day, risk management should not live only in your head. It should be built into the
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way you trade. Okay? And that's the real purpose of having all of these risk calculator and got real sense in Edge Flow.
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To make discipline execution easier, to reduce the friction it's needed to be disciplined, to do the right things, so that it can become more consistent, so that your results can become more repeatable and more predictable, and more scalable.
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Right? So with that being said, hope you guys have enjoyed this lesson. And as always, remember you're just one trade away.
Topics:risk managementtrading disciplinecapital protectionloss controltrading psychologyconsistent profitstrade risk definitionmax daily losstrading edgelong-term trading
