* What is it? It is a way for you to protect your money, ensuring that if there are losses, you only lose a small part, not 'burn' your entire account.
* Why is it important? Because it helps you survive in the market long-term. Making money is hard, but keeping it is even harder. Having capital means having opportunities.
* How?
* Only use idle money, do not borrow.
* Each time you trade, only accept to lose a very small part of the total capital (for example: 1-2%).
* Always set a Stop Loss (SL) order: Automatically exit the order when the price goes against you to limit losses.
* Always set a Take Profit (TP) order: Automatically exit the order when the price goes in the right direction and reaches the profit target.
* Must have a plan and discipline to follow, do not trade based on emotions.
Real-life example:
Suppose you have 100 million investment capital. You apply the principle of risking only 1% of capital for each trade. That is, each time you enter an order, you only accept a maximum risk of 1 million VND.
You decide to buy some asset (for example: Coin X) at the price of 100,000 VND/unit.
After analysis, you determine that if the price drops to 95,000 VND/unit, you will cut losses (SL). The loss you accept for each unit is 100,000 - 95,000 = 5,000 VND.
With a maximum allowable risk of 1,000,000 VND and a loss per unit of 5,000 VND, you will calculate the number of Coin X units allowed to buy:
Amount = Total allowable risk / Loss per unit = 1,000,000 / 5,000 = 200 units.
Therefore, you should only buy a maximum of 200 units of Coin X at the price of 100,000 VND. The total amount spent on this order is 200 * 100,000 = 20,000,000 VND (20% of total capital, but the risk is only 1%).
At the same time, you set the Take Profit (TP) point, for example based on the R:R ratio of 1:2. The risk is 5,000 VND/unit, so the profit target is 5,000 * 2 = 10,000 VND/unit. The TP point will be 100,000 + 10,000 = 110,000 VND/unit.
If the price drops to 95,000 VND, the order closes automatically (SL), you lose 200 * 5,000 = 1,000,000 VND (exactly the risk level of 1% set). Capital remains 99 million.
If the price rises to 110,000 VND, the order closes automatically (TP), you profit 200 * 10,000 = 2,000,000 VND. Capital becomes 102 million.
Thanks to risk management, a losing order doesn't make you lose much, and a winning order with a good R:R can compensate for many small losing orders.
In short: Don't let a few wrong orders make you lose everything. Always have an exit plan (SL) and a profit target (TP), calculate carefully how much money to enter based on the acceptable risk level for each order, and discipline to adhere.
