 Hey guys, what is going on? It's Brycat 2-3 here with Xtrades. Today we're going to talk about risk management and just really help you better understand all the different components of risk management and how you can implement them into your own strategy. So a few of the topics that we're going to cover include win rate percentage, risk versus reward, stop losses, and essentially position sizing. So these are the main things we cover. We go into more detail with probably the top three than position sizing, largely because position sizing does vary a lot from person to person. And obviously, depending on your account size, it's impacted and depending on your risk tolerance, it's impacted. So it's a little different for everybody, but there are just some guidelines that we'll go over there. So getting right into it, when we take a look at win rates and risk versus reward at a high level, the win rate gives us a good understanding of the success rate of the trades you enter. So it's just the percentage of winning trades out of your total trades. Now, this can be very useful at a high level, but if you don't have proper position sizing, or if you don't have a good risk versus reward with the trades that you enter, the win rate can be pretty unnecessary and pretty useless, because if you're getting a 70% win rate, 80% win rate, but you're making these trades that are winning 10%, and the losers that you have lose it 75%, 80%, then it's obviously you're still going to be negative from a P&L standpoint. And we're going to talk a little bit about understanding kind of good setups in terms of risk versus reward and essentially how you calculate and derive it. So with this risk versus reward at a high level, it takes the percent gain that you expect compared to the potential percent loss. For example, if your stop loss was triggered. So the percent gain you'd look at your price target for, and then your percent loss would be, again, if your stop loss gets triggered. So the risk to reward ratio is that percent gain divided by the percent loss. So if you think a stock's going to break out and make a 7% move, and your stop loss is 1% below entry, then that would be essentially a 7 to 1 risk to reward trade, which is obviously a really strong trade. But at any rate, that's just an idea to give you better understanding of the risk to reward ratio. And ultimately, this really is that key function and the backbone for your trading because as important as win rates are and entering successful trades, it's just as important that your successful trades have a really high reward relative to their risk. So you don't want to be entering these small moving, very low reward trades that have higher inherent risks. So again, just kind of going further into an example, we'll take a look at 2 to 1 risk to reward ratio, 3 to 1 risk to reward, and 4 to 1 risk to reward. So again, these are just like average gains. But again, it's just showing an example. So if you have 10% gain and 5% loss, then that would be the your perceived risk to reward 3 to 1 would be 15% gain 5% loss, and 4 to 1 20% to 5% loss. And for the purposes, so you can see how the compounding interest and compounding returns impact the P&L. And you can see how the risk versus reward impacts the P&L with that same win rate. So for a 2 to 1 risk to reward ratio, at a 50% win rate, so we have 10 trades, 5 or winners, 5 or losers. That 10% winner from the 2 to 1 ratio nets us about 50% overall if we reach price targets, 50% of the time and have success 50% of the time. Whereas the losers, if we lose 5% on each of the losers and we lose half the time that we're losing out on 25%, but that cumulative P&L because of our, our stronger risk to reward ratio comes out to plus 25%. And then obviously, if we look at the next example, this 3 to 1 risk versus reward ratio at that same 50% win rate, you're looking at a cumulative P&L of 50%. So it's two times this. Again, just with these samples, we'll have 15%, 10% and 20% gain, for example. But looking at it, you know, you have a 15% gain on half of your trades that nets out to 75% in terms of cumulative gain. And then the losses that you inherit are coming at 5%. So that comes out to the negative 25%. And overall, with equal positioning and position sizing rather, you're looking at a cumulative P&L of 50%. And, and this is really where it comes to finding, obviously, trades that just have those strong risk to reward ratios, because even if you win half of them, you can still make, you can still have very profitable trading, as long as your position sizing is decent. And this is just again, a good example and a good visual of how you can see those compounding returns from, from using risk versus reward over time. So obviously, a component that was mentioned in the previous slides was this stop loss. And I don't talk about price targets in this, but price targets are obviously to the gain side. So those are involved in the formula as well. But the stop losses are really important components of the strategy and of determining these risk versus reward ratios for a few reasons. And, and one of them is really just curbing those incremental losses when you have a key level of support broken. So obviously, after a key level of support is broken, and you lose that kind of high volume trading area, prices can range more freely downwards. And you can kind of just see your losses increase even if you're in it for 10, 15 minutes too long, once that support zone is broken. So again, it curbs those incremental losses. But then furthermore, once that key support is broken, it changes the bias of the setup, you know, your previous trend was invalidated. So that brings us to point two, which is a break below this stop loss is going to alter that risk versus reward and the price target. So this is why it's important to have a stop loss and execute it when that key level is broken, because the price target and the bias are all likely going to be invalidated once a key support zone is broken. And this changes that bias of the ticker in the near term. If you break out to the downside of a bull flag, you're definitely not going to have that bullish bias that you did before. And your price target likely isn't going to be reached because that old area of support is also going to act as a new area of resistance. So there are a few components to it, but it would totally skew your risk versus reward ratio that you set up in the beginning if you held the trade through its stop loss. And again, as I just mentioned, holding through these levels can greatly affect your risk versus reward, as your risk in general is just going to be higher than it was when you originally calculated it. So it's very important to keep this in mind, especially with high risk trading methods and with options, even cryptocurrency. So it's important to keep an eye on these things and your stop loss in particular within these situations. So moving on to the next one, this is really just an example that I wanted to give you guys so you could visualize like what it would look like if you see a nice setup and you're like, what does this risk versus reward setup look like? And this is just a good example. Obviously, it's just a diagram of a rising triangle, but it illustrates the point well. So ultimately, we have this rising triangle that we know is inherently bullish. And essentially, when we look for this breakout and we enter hopefully at the breakout point or just before breakout, if you want to try and capture the entire move, then we have our price target, which we know is based on the height of the triangle. So that would be our potential percentage gain. And then we have our stop loss because we know either if price rejects this zone after we enter and comes spiraling downwards, if it drops below this diagonal support, there's likely going to be a lot of selling and it's going to invalidate the current trend that we're seeing a new trend could form, but that would just be purely speculative. So you want to make sure that you stop out once this key level of support is broken. And that is going to be your theoretical percentage loss. And then you would just divide essentially your percentage gain of this projected price target by your percentage loss. And that is really what gives you that risk versus reward ratio. And obviously, it's going to be different for options again, because you're going to have contracts that essentially decay over time. And it gets a little difficult calculating a perfect risk versus reward ratio. But as far as stocks go, just the simple percentage gain of that price move will suffice. And again, this is just a good visual representation of this percentage, the size of this percentage loss versus the size of the percentage gain. So these are things that I definitely want you to keep an eye on. And again, one of the reasons why it's so useful, leveraging these price patterns and these key areas of support and resistance, because they're important for timing your entries, they're important for building that stop loss, and they're important in forming your projections for future price movements. So that really kind of is the bread and butter that makes risk versus reward trading so good and gives you the high probability of entering good trades overall, but also trades that just have that strong risk versus reward ratio. So the last slide we're going to talk about is the position sizing. And position sizing, again, is very tricky because everyone has different aversion to risk. But overall, there's not really a set rule, but most sources recommend no more than 2% of your account in any one position. So I'm going to stand by that for the sake of this presentation. Again, it could definitely be difficult for you to do depending on your account size, but this is just the general recommendation provided by many sources. So it's just important that if you do trade above this level, just understand that you are taking additional risks. So if you're taking those additional risks, you have to be very smart about the trades you enter and really take heed in your win rate and be meticulous about your risk versus reward ratio because especially if you're entering trades that are 5%, 10% of your account, which we obviously wouldn't recommend, if you do enter trades like that, then you really want to be meticulous about the details and understand every scenario and really understand what would happen if this trade went right, what would happen if it went wrong, and am I willing to accept that risk because it is a large percentage of your account. So again, just at a high level, no more than 2% of your account in any one position is recommended, but ultimately it's up to you to decide as you are your own advocate in terms of a version to risk. But again, just remember, if you are taking positions that are greater than that 2% threshold, you should be extra careful and extra meticulous in understanding the reason for entering that play, understanding your price target, understanding your own win rate, and understanding your risk versus reward ratio for this trade. So you have all the facts in front of you and you have confidence in this trade that you're entering if you're trading with 5% or 10% of your account. And that's really what it comes down to at the end of the day is doing all of your due diligence if you're taking a larger position sizing and fully understanding why you're entering the trade that you're entering and understanding your expectations for that trade. So that's really all I have for you guys today. I hope that this was helpful. Again, we really just talked about setting stop losses, understanding your win rate and how it's calculated, and understanding that even with a good win rate, you could see poor performance if you don't have strong risk versus reward ratios. And then beyond that, make sure that you're watching your position sizing. It's very important to know how large of a position you plan to take and not to overextend yourself unnecessarily. And even before that, just understanding the position that you're entering as a whole is very important and setting your expectations based on the data in front of you and making sure that you do not trade emotionally and take on unnecessary risks. So thank you guys so much for joining. I hope that you found this helpful. If you have any questions, you can reach out to me in the group chat or leave a comment below. So thank you guys so much, and I hope you have a great day.