When entering the world of investments, one of the most important aspects is "Risk Management"; you can be very good at analyzing charts, obtaining valuable news, but if you do not know how to control this aspect, sooner or later you can lose everything.
Like everything in life, we will always have a risk and a benefit, and here is where we must pose the following question: Is this risk worth it?
If the answer is YES, it is because the BENEFIT you will obtain is much larger than the LOSS.
If you are a Trader who normally trades daily, it is most advisable that your risk-benefit management is 1:3.
Let's take an initial account of $100 in capital; if you are conservative, you "SHOULD" only use the following formula: for each operation you execute, the maximum loss can only be 1% and the gain 3%.
That is, $1 of loss and $3 of possible gain; is this formula worth it?
Of course, if you win the operation you are gaining 3 times the value of a possible loss.
In a hypothetical case where you carry out 16 operations a month:
Won 8 (1:3) = $24
Lost 8 (1:3) = $8
Won - Lost = $16 (16%).
As we can see in the example above, even LOSING the same number of operations as WON, you are still obtaining profits; that is, even with a 50% probability of failing, you continue to make money, but this is only due to good risk management.
Numbers don’t lie, and even with this formula, you only need a 30% effectiveness to obtain profits.
