Speaker A
What up, guys? And welcome to another Path to Profitability video. Um, I'm sorry I completely forgot to film this yesterday, and it may be because it's such a small and short video that I forgot to film it. Um, but
Learn key trading skills: strategy, risk management, and psychology to become a profitable trader with discipline and consistency.
Key Takeaways
- Profitable trading requires mastering strategy, risk management, and psychology.
- Psychology is essentially discipline to follow your trading and risk plans.
- Consistent risk management protects your capital and supports long-term profitability.
- Avoid chasing quick riches by overtrading or increasing risk beyond your plan.
- Trading success demands patience, discipline, and adherence to proven methods.
What the video covers
- The video emphasizes three essential skill sets for profitable trading: strategy, risk management, and psychology.
- Strategy involves having a proven trading plan with positive statistics like win rate and risk-to-reward ratio.
- Risk management means using consistent risk per trade to protect the trading account from large losses.
- Psychology is defined as the discipline to stick to both the trading strategy and risk management plan.
- Good psychology naturally develops from consistently applying strategy and risk management.
- The video warns against trying to get rich quick by overtrading or overleveraging, which breaks both strategy and risk management.
- Trading is a skill that takes time to develop and is not a get-rich-quick scheme.
- The speaker shares personal insights on maintaining discipline and managing contract sizes to simplify risk management.
- Prop firm drawdown rules and challenge accounts are briefly discussed as part of risk considerations.
- The video is part of a series, with the next video focusing on strategy execution.
Chapters
- 00:00Introduction and Overview
- 01:09The Three Essential Trading Skills
- 02:20Understanding Trading Psychology
- 03:38Discipline and Sticking to Your Plan
- 04:57Risk Management Principles
- 06:17Common Psychological Pitfalls
- 07:30Reality of Trading and Patience
- 08:35Personal Insights on Risk Management
- 10:49Prop Firm Drawdown Rules
- 11:41Conclusion and Next Steps
Full Transcript — Download SRT & Markdown
Speaker A
yeah, sorry, forgot to, like, literally completely forgot. Um, but today is going to be short and simple. It's going to be on risk management.
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There are three skill sets that we need to learn as traders to make us overall a profitable trader. We need strategy, which we have the bare bones now for.
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We've learned pretty much every single confluence that I use within the markets to be able to execute. We just haven't put it all together and how I look to execute just yet. Um, we've also identified how we can finally daily bias
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in the market. So, we're pretty set on strategy besides me actually giving you the full-fledged sauce. And I've been edging you guys, waiting, waiting, waiting, waiting to be able to give that to you guys because most of the time
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people just watch that video and then they're just like, boom, goodbye. Like, I'm just going to take this and run. So that's why we're doing risk management before strategy. So we need strategy, we need good risk management, and then we
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also need good psychology. Okay, psychology literally just means sticking to both of these things. Like, at the end of the day, people are always like, "How do I get good psychology in trading?" Well, it's as simple as sticking to your
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trading plan and sticking to your risk management plan. That's literally all psychology is. And I don't know, I think people, even myself included, like when I was trying to learn how to trade and especially when I first turned
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profitable, I was like, rah rah, psychology is the biggest and best thing that you need to learn how to do when you're day trading. But then once you actually get good at trading, you kind of start thinking about it in a
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different way. And you actually realize like, okay, it's like psychology isn't like, like what even [ __ ] is psychology? So today is going to be like risk management and psychology combined.
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Um, but psychology is literally just discipline. Like just discipline as the skill set. And it's the discipline to be able to stick to your strategy, only take trades when your strategy presents itself, and stick to your risk management
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plan. Don't over risk. Don't overleverage. And don't overtrade. If you do these two things correctly, then you technically have good psychology. If you fail to stick to your trading plan, then you have bad psychology. If you fail to stick to your risk management
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plan, you have bad psychology. So again, for me, as somebody who has relatively good psychology within the market, I just think it's like a skill that just comes along with already being good at the other two skills. Like if you stick
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to these two skills, then you automatically get this one. But if you can't stick to these two skills, then you never get this one right here.
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So, it's kind of a weird concept because there's literally nothing that I can get on here and tell you to do, um, that's going to make you a better, like, to give you better psychology. Like, there's literally not one single thing.
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Like, I can't tell you something motivating. I can't tell you some sort of homework for you to do to make your psychology be better about trading. It's literally all dependent on you and just if you want to become a profitable
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trader or not. So what do I mean by that? It's literally determined on, okay, are you going to stay disciplined to the two things that we know for a fact create a profitable trader?
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Sticking to a trading plan and using correct risk management. If you do both of these things then you get psychology and you also will be able to become profitable. Now, it's a lot more difficult than you think to just say,
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"Yes, I'm going to stick to my strategy and yes, I'm going to stick to my risk management plan." Um, because we obviously as humans have a lot of emotional attachment to money. However, at the end of the day, if you really
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wanted to, if you truly want to be a full-time day trader, you would just do the things that you're required to do in order to get there. So, I'm telling you right now, the only piece of psychological advice that I have for you
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guys as day traders is if you want it bad enough, you will stick to your day trading strategy and you will stick to your risk management plan. Because there is no other way in the entire world that you are going to become a profitable
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trader without sticking to both of these. Because without sticking to both of these, then you don't have good psychology within the markets. And what does it mean by sticking to these? It means only taking a trade when your
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strategy presents itself, using correct risk management, which we'll talk about today. There's different variations and different ways that we can use correct risk management. And that's literally it. Like, if you stick to your strategy and if you make sure that
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you're risking the correct amount, you're going to be a profitable trader. Like if your strategy, based off of data through like a trading journal such as Trade Zella, um, proves to you through statistics that you have
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a positive win rate and a positive risk-to-reward ratio, you are a profitable trader and all you have to do is stick to that strategy that has a proven probability in the market and just use correct risk.
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Like use a consistent risk that is not going to blow your account if you lose a couple trades in a row. Use a consistent risk that isn't going to blow your account if you have a losing month or
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another losing month after that. Right? We just want to be using a consistent amount of risk that is going to, again, with the stats provided from our strategy, going to make us a profitable day trader. So again, psychology as like
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all, I know you guys are probably watching this video and you're probably thinking, well, damn, like I thought psychology was like a huge thing in trading. It is. It really is. It's massive in trading and it's why the
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majority of people are unable to turn profitable. But at the end of the day, it's not like it's not something that you can like work on or grow. It's just like, do you want to turn profitable or
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not? It's like if you want to turn profitable, then you stick to your strategy and you stick to your risk management plan. And you kind of just have to be real with yourself and you're probably saying,
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"Well, I want to turn profitable, but my psychology still sucks." Well, it's because you're thinking about trading in the wrong way. Okay? So, it's not your psychology. You're thinking, "I want to get rich quick." And if you're thinking,
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"How can I get rich quick?" That's going to be by taking trades that aren't in line with your strategy because you're going to be trying to take as many trades as possible. And that also means ramping up the leverage and ramping up
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your risk every single trading day so that you can win more on a trade and get rich quick. So in turn, what are you doing? You're breaking both strategy and risk management.
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So again, do you want to turn profitable or not? And hopefully this goes without saying, trading is not something that is going to get you rich quick. Okay? If you think that you're going to get into trading and make a [ __ ] ton of money
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within the span of a couple months, you're in the wrong business, dude. And you're not in the right space. Um, so hate to break it to you. If you thought you were going to get into trading and become a
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freaking billionaire within the first couple months, um, you should look into buying lottery tickets because there's literally nothing else in the world that can do that for you besides potentially winning the lottery. Um, and that's the harsh reality of literally any of these
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high-income skill sets. Um.
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take time to build up your capital and then from there you're going to be able to reap the rewards of the skill set.
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Like for me bro like I just recently within my own trading was able to start reaping the rewards of the skill set of trading. Like if you look back to me like [ __ ] 2 or 3 years ago, like I
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was not trading with the size that I am now. I was not making nearly as much money from trading as I am now. Um, and that's just point blank period like how it works. You just like scale with time.
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And a lot of people like some of you guys may be first time viewers on here and you just think that I spawned in here like 2 months ago and magically like just had all of this money and
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that's not the case. um you know it's it's a culmination of years of work to be able to get to this point. So the reason why I'm saying that is because a lot of you guys think that you're just
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going to be in my position at the end of this year and I would be lying to you if I told you that that was possible. Um you're able to do what I've done with my life for sure. Um but it's going to take
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a lot of time and it's going to take a lot of effort. Um, so that's really all psychology is. Psychology is just being like point blank period honest with yourself and saying, "Hey, I know that this is going to take a long time. I
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know I need to focus on the skill set of trading and I know that the only way for me to turn profitable is by sticking to the strategy that gives me a probability in the market." And then sticking to a
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risk management plan um that makes sure that when I'm using the strategy, I don't blow the account and I live to trade another day. And then from there, it's just going to be slow stacking. Um, and there's a bunch of companies and
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softwares that are able to help low income or low capital individuals to be able to scale a lot quicker, like funded accounts, like we talked about in yesterday's video or the day prior's video. Um, so again, like I'm not saying
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that it's impossible to scale up quickly. Um, I'm just saying it's going to take time. And that's all psychology is is being brutally honest with yourself, understanding that this is going to take time for me to learn the
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skill set of trading. And the only way for me to turn profitable with trading is by sticking to my strategy and sticking to a risk management plan. So with that being said, let's go over risk management. Again, um risk manage dude
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like realistically strategy is like the most complicated um thing within trading. At the end of the day, guys, trading is very simple.
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um you know like you find a strategy that gives you a probability within the market and then you find a risk management plan that is able to sustain that strategy within the win rate and within the risk-to-reward so that you
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can live to trade another day so that you're not blowing your account when you go on a little losing streak. Um and you just have to stick to those two things.
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Like when you put it like that trading is trading is pretty freaking simple. Um, so for me, for my risk management, like I used to do the whole thing of like calculate 1% of your balance and then I'm going to only risk 1% of my
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account balance per trade on this. And for each person, it's going to be different depending on what their risk tolerance is. But for me, I moved away from doing like, hey, I'm going to be risking um like only 1% of my account
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balance per trade, and I just went to I'm going to risk this amount of contracts per trade. Um it just makes makes my life a lot easier. So, I'm not thinking and having to pull up like a lot size calculator or a contract size
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calculator. It [snorts] just makes it a lot easier of just like, okay, whenever I press buy, whenever I press sell, it's going to be the same amount of contracts for NASDAQ and then I have the number of contracts on ES that I'm going to be
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using. Um, and it just makes my life a lot easier. And if you guys are trading on a live account, I would recommend you guys do the same. You want to find the number of contracts that is a safe
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amount for you to be risking um for your account balance. Okay? So, that doesn't mean you're risking 10% of your account balance per trade. That doesn't mean you're risking freaking 20% of your account balance. That doesn't mean that
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you're risking 5% of your account balance. Usually the sweet spot is anywhere between like 1 to 3%. If you can find a contract size that again, when we're looking at the charts, like you can literally just find, hey, what's
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my typical what's my typical stop-loss size? So on this trade that I took today that ended up being a big win, my stop-loss size on ES was around 16 ticks, right? So, I can keep that in my mind. I'm like, "Awesome. On this trade,
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it was 16 ticks." And then I can look back to another short position that I maybe maybe had on the S&P 500. And on this trade, it was 34 ticks. And then on another trade, it was like 28 ticks. So,
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I can say, okay, on this trade, we had a relatively tight stop-loss. So, on this this on this position, you know, we're going to be risking whatever like three three contracts. So, this will be like the bare minimum that I'm going to lose
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because this is going to be the lowest amount. And then if I'm risking three contracts on this, you know, how much am I going to lose when it hits a 35 tick stop-loss? And then as long as I'm
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comfortable with both of those numbers, obviously for the smaller stop-loss, it's going to be a much more comfortable number. But as long as we're comfortable with like kind of the largest stop-loss um like stop-loss amount that we're going to be typically using on a trade
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to trade basis, then that's all that's all that matters, right? And again, like us going up to, you know, 35 ticks, that could potentially be risking like 3 or 4% of the account, but I'm willing to do that because again, if I'm risking 3 to
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4% of the account and then I'm only getting like a 1:1 risk to risk-to-reward ratio, you know, I'm still able to get a 3% gain on this and then if I lose, doesn't really matter that much because whatever I get I get
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um stopped out, I lose 3%. But then on a trade like this where I have a much tighter stop-loss with probably a higher risk-to-reward, I'm not going to be risking as much as I am on the higher risk, lower risk-to-reward trades, but
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I'm going to be making more. Like on this trade, we hit full take profit. So this was a 1 to 4.81 risk-to-reward. So again, I'm risking less, but I'm in turn either making a little bit more on this
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trade or pretty much the exact same as a 1:1 risk-to-reward on a on a larger stop-loss. So, at the end of the day, it always ends up like evening out by using the same contract size. Now, I would
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like to preface one thing. If I do have um there's a couple times when I change the contract size. So, one time is if the stop-loss is like very drastically larger than usual, then I'm going to just cut the contract size in half. And
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then the other times are when we see fundamental data. So if we look and we see, hey, today there's there was PPI news data. So um the market is going to be a little bit more choppy and I'm not
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so sure about how the market's looking today. Then what am I going to do? I just say to myself, hey, I don't really like the way that the fundamentals are looking on the news. So what am I going
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to do? I'm just going to cut my contract size in half. Okay, that's really how I do it. It's uh it's made my life so much easier instead of like panicking having another browser open for uh the contract
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size calculator. It just makes my life a lot easier. Now, as for funded accounts, you're probably saying, "Okay, that's for live accounts. What what about for funded accounts?" So, funded accounts is going to be determined on a prop firm to
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prop firm basis. So, a company to company basis and also dependent on what accounts you are trading on. So let's say you're trading on Alpha Futures, for example. Alpha Futures, they have um a little bit of a larger draw down for you
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to be trading in and then also a easier consistency rule to stick to versus Tradeify. They are going to have a tighter consistency rule and not as large of a draw down, but in turn, those accounts are going to be cheaper. Right?
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There's pros and cons for each prop firm, but what you guys need to do is you guys, again, it's unfortunate because I wish I could be like, "Oh, yeah, this is like the onestop shop and like the one way to use proper risk
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management on funded accounts, but unfortunately, every single prop firm is different. Some prop firms there's trailing draw down. Some prop firms there's trailing end of the day draw down. Some prop firms there's no trailing draw down. Some prop firms
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there's trailing equity draw down. Some prop firms, um, it's on a $150,000 account, it's a 3,000 draw, $3,000 draw down. Some prop firms on a $150,000 account, it's a $5,000 draw down. So, every single prop firm is going to be
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very, very different when it comes to using correct risk management. So, you're just going to have to look. I know this [ __ ] sucks, but you're literally just going to have to look yourself at the rules on what account
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you are trading on. And you're going to have to see for yourself, okay, how am I going to manage my risk with one the consistency rule that they have because that's very important, especially if they have consistency rule on the
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challenge and then also a consistency rule on the payouts. And then on top of that, I need to be looking, hey, is my draw down trailing with the equity of the account? is my draw down going to be
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trailing by the end of the day on the account is um how large is the amount of draw down that this company is giving me. So all of those things are things that you need to take note of and be
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very conscious of when you are trading on prop firms. And in turn everybody's risk management plan is going to be a little bit differently. Even even on top of that, your risk management plan is going to be a little bit different from
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the challenge account to the live account where you're going to be eligible for a payout. Most people what they do um is they'll get on the challenge account and they're they'll they will pretty much do the max amount
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of risk for them to be able to pass the account in as few trades as possible, right? Cuz they're just trying to get through the evaluation phase as quick as possible. And then once they get through the evaluation phase, once they're on
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the live account and they're eligible for a payout, what will they do then? then they'll scale back the risk because they're like, "Okay, this is the show time. This is time for me to again, I don't want to blow this on one single
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trade versus the Eval, they're willing to potentially blow it on one single trade because they're like, hey, I'm just trying to pass this as quick as possible." But once you pass it, that's when it's like, "Hey, let's pull on the
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reins here. We want to potentially um we want we want to be trading a little bit less risky because we have the opportunity to get a payout now. So, all in all, that is risk management and psychology explained. Tomorrow, we're
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going to go over strategy, and then that is going to be a wrap for the path to profitability. Hopefully, you guys have enjoyed the series so far. It's been fun for me to make, and unfortunately, tomorrow it's going to come to a close.
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So, with that being said, I love and appreciate you boys. I'll see you guys tomorrow for the strategy video and then we'll be said and done. All right, peace out.
Topics:tradingrisk managementtrading psychologyday tradingtrading strategydisciplineprofitabilitytrading planovertradingleverage
