 So growing up, we are basically brainwashed into thinking of risk in a negative term by our environment. But when it comes to investing, risk is a prerequisite for success. Those who are the most successful in investing have simply just mastered the art of managing risk. Remember that 90% of day traders fail. It is half the battle. So today, let me get you halfway there. Hey, what's up Jay here and welcome to Bitcoin Daily bringing you guys the best tips, tutorials and ideas to help you guys become profitable and successful traders. The goal of this channel is to empower you guys with the resources and knowledge to take you up to that next level. So if you guys are new here, make sure to hit that subscribe button and make sure to smash that like button. And if you have any questions about anything in this video, just drop it in the comments. So what is risk management? In the investment world, risk management is the process of identification, analysis, and acceptance of uncertainty in investment decisions. We tend to think of risk in negative terms. However, in the trading world, risk is necessary and inseparable from desirable returns. Traders use strategies like portfolio diversification, stop loss points, take profit points, and position sizing to effectively manage risk. So why is risk management important? Risk management helps cut down losses. It can also help protect a trader's account from losing all of his or her money. The risk occurs when the trader suffers a loss. If it can be managed, the trader can open him or herself up to making money in the market. Risk management is an essential but often overlooked prerequisite to successful active trading. After all, a trader who has generated substantial profits can lose it all in just one or two bad trades without proper risk management. So then the question becomes, how do you develop the best techniques to curb the risk of the market? So let's talk about planning your trades. As Chinese military general Sun Zhu famously said, every battle is one before it is fought. This phrase implies that planning and strategy, not the battles, win wars. Similarly, successful traders commonly quote the phrase, plan the trade and trade the plan. Just like in war, planning ahead can often mean the difference between success and failure. So next let's talk about stop loss and take profit points. So stop loss and take profit point represents two key ways in which traders can plan ahead when trading. Successful traders know what price they are willing to pay and at what price they are willing to sell. They can then measure the resulting returns against the probability of the stock hitting their goals. If the adjusted return is high enough, they execute the trade. On the other hand, unsuccessful traders often enter a trade without having any idea of the points at which they will sell at a profit or a loss. Like gamblers on a lucky or unlucky streak, emotions begin to take over and dictate their trades. Losses often provoke people to hold on and hope to make their money back while profits can entice traders to hold on for even more gains. This is why you must know when you're looking to take profits and when you're looking to exit at a loss. Trade with logic, not with emotions. So let's talk about the 5% rule. A lot of day traders follow what's called the 5% rule. Basically, this rule of thumb suggests that you should never risk more than 5% of your capital or your trading account into one single trade. So let's say for example you have $10,000 in your trading account, your risk in any given instrument should never be more than $500. If you don't know how to calculate your position size correctly, I recommend that you check out this video right here that I made on how to calculate position sizes properly. But a very important thing to keep in mind is that just because 5% is the rule, does not mean that every trade you make should be at a 5% risk of your account. In fact, 90% of your trades should be in the 1-3% range. The majority of your trades should not pass a 3% risk of your account. If you're risking more than 3% per trade, a few back-to-back losses can really impact your overall capital. Especially if you have a small account. Guys, small accounts blow up quickly if you're not sizing your positions properly. This strategy is common for traders who have accounts of less than $100,000. Many traders whose accounts have higher balances usually risk even less because as the size of your account increases, so does the position. The best way to keep your losses in check is to keep the rule below 3%. Anymore, and you'd be risking a substantial amount of your trading account that can be hard to come back from. The 4-5% range should only be used in under 10% of your trades. This can be used in trades that have higher chances of success. Small accounts should probably try to avoid it as much as possible. Taking a 5% loss on a trade in a small account hurts a lot more than a 5% loss on a bigger account. Remember that the less money you are, the closer you are to being out of the game and being at zero. Alright guys, I hope so far you guys are enjoying this video. Next we're going to cover more on setting stop losses and taking profits which are the main risk management factors when setting up trades and when managing risk. Then of course the other thing that we have to talk about is a big elephant in the room keeping your emotions in check when trading. So we're about to get to all that next. First make sure that you are subscribed to the channel. Make sure that if you are enjoying this video to smash the like button as well. And if you have any questions about anything covered in this video so far, drop it in the comments. I'm always happy to answer you guys. So without further ado let's jump right in to talking about stop losses and taking profits. Alright so a stop loss is the price at which the trader will sell a stock and take a loss on the trade. This often happens when a trade does not pan out the way a trader hoped. These points are specifically designed to prevent the it will come back mentality and limit losses before they escalate and become too big. For example if a stock breaks below a key support level traders often sell as soon as possible. The idea when trading is to minimize your losses and maximize your profits. With one big loss on a trade it could take you multiple winning trades just to make that money back. So it's better to take multiple stop losses which one winning trade can break even on than one massive loss which it will take multiple winning trades just to break even. So on the other hand a take profit point is the price at which a trader will sell a stock and take profit on the trade. This is when the additional upside is limited given the risk. For example if a stock is approaching a key resistance level after a large move upward a trader may want to sell before a period of consolidation takes place. So for example if we're watching bitcoin movement here you would see that up here towards this top which is $60,000 was going to be a resistance line. So $60,000 is a big whole number right. So we always say that at big hole numbers there's always resistance. So you can see here as soon as we reach that $60,000 mark we instantly got rejected down. So you see this big red candle back down to the downside. Now as we continued to try to retest that level we continuously got rejected there and then this also showed us that there was a trend line going down. So now you can see we've been rejected here we've been rejected here been rejected here and yet again rejected at that $60,000 level. So that was a that's where you want to be taking profits anytime you see a resistance level you want to start looking and make sure that you have your take profits set up so that you're taking profits before the big rejection as you saw again here when it comes to stop losses then you always want to have you want to know where your support is and you want to have a stop loss set up on the breach of the support. So for example right here would have been your support zone and as soon as you saw this get breached right here you would have sold. You wanted to sell at that point before it went under that level because once that got breached you can see here that we had basically a sell off there then it retested that level which was support and now flipped into a resistance and got denied there again which sent us on a big sell off down up to the downside. So you don't want to be holding onto those bags because this is what could happen if you if you would have just taken profits here at that range at that resistance range you would have been better off and you would have taken your profits versus you know not taking your profits because you're being greedy and trying to let it run even higher and also the same thing if you entered a trade and then it went below this support you want to sell because if you would have held look at the big massive loss you be holding on to right now praying and hoping for it to come back up because you're stuck right and last but not least let's talk about emotions. I know I know guys we are all human I am also human and emotions is part of being human. However keeping your emotions out of your decisions is also part of discipline. Discipline is probably one of the most difficult skills to implement into your trading but it's also the most important. I always hear people say I'm human I can't help it. Guys at the end of the day if you want to be a successful trader that excuse is not going to cut it. You either want to make money or you want to make excuses but you can't do both. This is the reason why in the trading world a successful trader can give their system to a rookie and the rookie will end up losing all of their money because they can't keep emotions out of the trades. That means that they can't take losses when the trading system says to get out and they can't take the wins either because they want to hold on for bigger gains. And trust me guys I have a trading group with about 300 members in it and I have people all the time I've been running a trading group for four years now so I see it all the time. I'll have a successful and profitable month and then I'll have people complaining that they did not make profits and that it's my fault when in reality it's your own fault because you're not disciplined. In trading there's nobody to blame but yourself. That's why a signals group alone is not enough. You must also put in the time to be better and be disciplined in order to profit. I can only take you up to the water. I cannot make you drink it. That's why adopting a proven trading strategy and following the specific rules determined by that strategy are vital to success. Get into the trade when the system tells you to and get out the same way. Do not second guess the system. Of course systems can take multiple losses in a row but as long as you are following the system in the long run you will profit. That is what the system is set up for. Minimize losses maximize gains. So the bottom line is traders should always know when they plan to enter or exit a trade before they even execute the trade. By using stop losses and profit taking points effectively a trader can minimize their losses and maximize their wins. In conclusion stop thinking of risk in a negative term. Risk is simply a prerequisite to success. If you want to be successful in investing you must master the art of managing risk. Remember that 90% of day traders fail and 100% of those who are not subscribed to this channel and don't like this video definitely fail. So all those subscribing to this channel and using risk management won't get you into that 10% it is half the battle. So subscribe to this channel and make your battle plans ahead of time. Guys I hope you have enjoyed this video. I hope I was able to thoroughly explain how important risk management is when it comes to trading and success in trading. If you do not learn how to manage your risk when trading you will not be a successful trader. It doesn't matter if you're following my signal or Warren Buffett's signals it does not matter because if you cannot manage risk you will not profit end of story. I hope you guys have enjoyed this video. If you have any questions about anything in regards to risk management go ahead and drop it in the comments. I'm always always happy to answer the questions for you. Make sure you guys subscribe and smash that like button. Let's get this video to over 100 likes and if you haven't yet also make sure to turn on that notification bell. Remember we drop five videos a week. Mondays and Fridays we do market analysis. Tuesdays and Thursdays we do reviews tutorials and market news and Wednesdays we do live streams. So I hope to see you guys on the next video. As always peace and love.