Risk Management is an important tool for all traders

Greetings dear friends, it is yet another good day for us all traders in the crypto, forex, or the stock market. Whichever market you are trading, we are all in the same picture since we perform the same analysis using the Japanese candlestick chart.

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Today, I will like to talk to us about a very important aspect of trading that you should be aware of even before you start your trading journey. It is one of the most important aspects of trading because it can help you stay in the market or kick you out without any questions.

Risk management has to do with the way we handle our risk while trading the financial market. This is the main reason why we have the stop loss and the take profit in trading. Humans have fear, greed, and emotions when it comes to trading because it involves money.

When dealing with trading, you are expected to take a good risk/reward ratio before taking the said trade. If the trade you are about to take doesn't have a good risk/reward ratio, then I will advise you don't take such a trade. When we talk about risk/reward ratio, we are saying that before going into a trade, ensure that the profit is at least 2x, 3x, and 4x to the moon of the loss.

A good example is going into a trade where the risk/reward ratio is 1:4. This means that if the trade goes your way, you will make 4x profit and if it does against you, you will make 1x loss. For instance, if the profit of the trade is 5 USDT, it means if or goes as planned you will make 4 * 5 which is 20 USDT but if it goes against you will lose 1 * 5 which is 5 USDT.

This is what a good risk/reward ratio looks like. So if any trade you are entering doesn't have such please avoid such a trade. Another thing that needs to be considered is the leverage we use during trading. Leverage is a course that I will love to explain as a single post subsequently but for now let me give you all a brief overview of what it is.

Every trading platform provides traders leverage to enable them to trade their little capital and make more money. Leverage is a pool where assets are borrowed and used for trading. Depending on your capital there are many different leverages on different pairs of cryptocurrency.

It is always recommended to use low leverage so that your account will be safe if the trade goes against you. As a newbie in the financial world, I advise you always use little leverage such as 5x - 10x. Please don't exceed that until you understand how the market works.

In summary, while trading the financial market, the risk management you need to take into consideration is the risk/reward ratio, the stop loss and take profit, and the leverage you use in your trade. Low leverages protect your account from major losses but you may not grow fast whereas high leverages will make you grow fast but dangerous as it can kick you out of the market anytime.

Disclaimer: ^{This post is made as an education and not investment advice. Digital asset prices are subject to change. All forms of crypto investment have a high risk. I am not a financial advisor, before jumping to any conclusions in this matter please do your research and consult a financial advisor.}