ICT Market Maker Primer Course - 02 - Considerations In Risk Management.srt

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ICT: Okay, folks, welcome back.

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This teaching is going to be specifically dealing with

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considerations and risk management. This module hopefully

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will be a little bit more of a sober reminder about how we

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should be looking at risk and how we can manage risk to

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survive and have longevity in our trading. Alright, maybe

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you had this in mind when you first got into trading After

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all, the guy that sat down with you before told you, hey,

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this method is so good. You risk 10% of your equity. It's

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going to make you money. Okay, if you have equity balance of

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$10,000 you're gonna risk 10%. Now the first loss you assume

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Guess what, you just took a $1,000 loss. Okay, system says

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continue risking 10% So what do you do? You get anything you

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take an X ray, bang, you hit with an IR loss your equity Now

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sits at $8,100. Three losses, hit with another $810 loss,

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bang your accounts not $7,290. This goes on for what could

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easily be seen in anyone's trading eight string loss, eight

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string loss. That is absolutely realistic guys, I don't care

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how good a trader you are, you're going to get this upside

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your head one day and you need to be prepared for it. If

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you're going to risk 10% of your equity simply because you

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think you're going to be hitting it on the next trade and

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you've been in drawdown, there's a psychological impact that

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traders go through. And we more or less deny the technicals

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that may be indicating that we're in a trade it's not going

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to pan out, but we won't let go of it. We start arm

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wrestling with the market because hey, you know, we're going

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to be right and it's gonna feel so good when we are and we

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can give the middle finger To be crude to the screen, it

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cuts at the screen. You say I got you, I got my money back.

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Everybody wants to have that stuff, you get that feeling of

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conquering the market and beating the guy that you took the

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money from the last time everybody wants to go into the

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endzone, slam football down and do their victory dance and

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all that. But that doesn't work in this business. And

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they'll hand you your head on a platter. If you give them

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the opportunity to take your money, and a lot of it, they're

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going to be more than happy to take it from you. If you just

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take an eight loss streak here and your equity of $10,000

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your account drawls down $5,217 that's 52% 52% folks, do you

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think you can take eight trades in a single week? that week,

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some of you guys on these forums trade. This could happen in

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a day. Now, I'm not saying that most of you guys aren't risk

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that are risking 10% you know, but there are people

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neophytes that come into this business and think they're

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going to do it. And I'm sorry. But, you know, maybe you'll

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come out the gate, make a couple wins and think, man, I'm

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risking 10%. And look, it's it's really working out well.

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But man, I'm telling you this, that cycle leads to

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destruction, right? Just eight trades. Look at this. If you

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have eight losses, you're crushed. That's that's a huge

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drawdown Not, not to mention the emotional impact and your

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mental equity because not only are we trading with real

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tangible money and currency in our account, that equity base

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is not limited. Use $2 terms. You have an equity amount of

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money in your mind what you're really willing to absorb and

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risk. You may have put 10,000 on account, but man, you don't

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really want to be losing 4000 of it. So what are you really

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trading with? $4,000 that's your mental capital. So we're

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going to talk more about that when we get into wealth

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building money management. But for now, understand that

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risking 10% absolutely should be a no brainer for you. You

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don't do that. Okay, maybe you're so turned off by 10%. But

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hey, you know, you're not too afraid of taking risks to 5%

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portrayed is. It's doable for you $10,000 starting account.

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Okay, first, last Bang 500 loss. Now your account drops down

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to $9,500. You do this for a couple series of losses it the

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fifth loss. Okay, now your accounts down to $7,737. But hey,

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you're going to make it back and you're not going to bend 5%

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risk on every trade. Well, with the standard typical eight

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string loss, it can happen to anybody. I'm not saying I had

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this once a month. I'm not saying I'm gonna have it three

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times a year, but it's going to happen eventually. If you

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are in this business at any length of time, you will suffer

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a Eight last string, it's going to happen.

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If you had the risk of 5% portray starting with equity

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balance of $10,000, your equity would draw down to the tune

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of $3,016 or 30%. drawdown. Can you can you withstand that?

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Can you imagine taking eight trades in a single week and

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being drawn down 30% Let me tell you something. I have done

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that. I have done that. Okay. And it is absolutely

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demoralizing because if you come out the gate strong

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thinking yeah, man, I'm gonna, I'm gonna tear it up. Well,

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yeah, you're gonna tear it up, right? You're gonna tear up

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your account, okay, and you're gonna sit there and you'll be

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depressed for the entire weekend. You're gonna move over

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possibly adding more money when that's not the answer. The

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answer is is controlling the amount of money that you put

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up. And controlling yourself is very difficult when you're

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in a period of drawdown if you're a new trader. I'm talking

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from experience Okay, when I got involved with commodities.

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I was trading, you know, five and six, seven contracts of

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Chicago portrayed wheat. And really my balance really should

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have been working with one midam contract. And I'm not going

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to go into contracts and specifications for commodities, but

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I'm just saying that I was over leveraging. And the worst

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part of it. I knew I was over leveraging. And when I was

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losing, it didn't hurt enough. I was going to be right. I

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was imposing my will in the market. And I'm telling you, you

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will lose doing that. It will hurt you doing that you don't

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gain anything from that except for misery and depression.

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Trust me, I know. Okay, so 5% risk is absolutely too much.

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It's insane. Don't do it. All right. Now let's look at the

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typical traders thought going in. This is the standard

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mentality of all traders. If you read it on all the forums,

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all the book, we all say and I preach it too. Don't risk any

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more than 2% per trade. Alright. Okay, we're gonna look at

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Trader one up here at the top. Okay. You have One trader,

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starting with an equity balance of $10,000. And he's going

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to risk 2% per trade, and he runs into the inevitable eight

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string loss, it's going to happen. Well, the account draws

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down after eight losses $1,318 total percentage draw down

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13%. You could probably withstand that. I mean, most traders

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could absorb that. Certainly new trades because they're in

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and they're invincible, and their events are going to be in

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the next streak where they make 100% accuracy. So this is

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absolutely, you know, within the realm of comfort for most

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people, if they have a 10,000 equity balance, and they only

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draw down, you know, 1300 bucks, most people can absorb

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that. But let's flip the script for a moment. Look at Trader

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two. Okay. He starts with $10,000 and he's starting with 2%

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risk. Watch what happens is first loss at 2% is $200.

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Suddenly, he has a problem. He has absorbed a loss.

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Something's going to take place in this traders mind that

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didn't take place in the first traders mind. So his next

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trade, he only loses $98. But it's still a loss. So the next

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trade he takes is what? A loss of $48 look at just after

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three losses, the difference in terms of equity. Where are

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we at? Essentially in the same neighborhood, but look what

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happens over the period of the eight losses trader to after

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eight string loss. His account draws down $538 total

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percentage drawdown 5%. Do you see a difference there? What

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do you think trader two did differently that trader one

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didn't do. Number one, he identified the fact that He's not

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perfect. He identify or she rather and definitely the ladies

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that are watching this Sorry, sorry, gals. The second trader

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here in our case study when he absorbs a loss, okay, he only

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takes one to do this the first loss immediately he cuts his

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risk in half. So no longer is he risking 2% so now he has

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drawdown at $200. So he risks on the next trade. When his

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account equity is at 90 hundred dollars. He's going to risk

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1% portrayed. Now, he assumes $1 loss. Does he stay at 1%?

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Absolutely not. What does he do he drops down to one half of

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1%. So it's next trade. He has lost $48 and 51 cents.

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Guys, you can take that. If you got 9700 in your account and

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you can lose $48 you can lose 50 bucks. You're not losing

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sleep over that. If you could lose if you lose sleep over

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that type of loss with the equity balance of 9007 hours.

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Stop trading. It's not for you. Go Go bet at horse races and

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you know, play lottery, something like that. But I'm telling

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you, you have to assume some kind of risk. You know, this

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goes along with everything that's been discussed in the

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beginning of the disclaimers. I mean, you have to understand

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you're going to lose money in this business. And if you're

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not comfortable with losing money on a consistent basis

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where you're not perfect, bottom line is stop trading. Okay,

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I have losses, you're gonna have losses too. I can't teach

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you how to trade perfectly without losses. No one can,

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you're not gonna be able to find it. And if that's the Grail

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you're looking for, it doesn't exist. Trust me. It doesn't

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exist because I'd pay everything I have for and it's not

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there, trust me. So let's keep this train rolling here.

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Okay, after he drops his equity risk to one half of 1%.

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Okay, and he has another loss, the fourth loss, okay. $48

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and 27 cents. While he takes another loss. He stays at one

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half of 1% look what happens at the end of his eight losses.

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He's got a huge amount of his starting equity still at his

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disposal, and he suffered eight losses, he hasn't had one

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winning trade yet. Now contrast that with trader one. This

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guy, he's down 1300 bucks. trader two, he's only down $530

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to 5% drawdown is absolutely tolerable in any one trading. I

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mean, you're gonna you're gonna suffer 5% Good grief 5% You

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know, that's it you're trying to make in a day some some of

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you guys that are trading, you have to control your risk.

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Okay, if you have a loss, cut your risk. If you have another

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loss, cut your risk trade and drop down to one half of 1%.

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Now if you have five or six trades, then you've lost that

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half 1% drop it down to a quarter percent. Okay, whatever

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suits your risk appetite. That's what you have to do, but

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you have to go the other way. You do not You do not average

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down loads you don't take well I lost 2% mean risk for now

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because if it all it takes is one trade and I'll make that

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back and maybe even make the 2% and I was hoping to make on

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the previous trade that lost, or I only have to make, you

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know half of what I lost in terms of pips in the last trade

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if I was fortunate, don't do that, guys. I've done it. I'm

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telling you, I've done it. Granted, I'll give you this and

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I'm gonna be fair. There's been times where early on, I did

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it, and it worked out in my favor. But when I tried it later

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on, it crushed me and it never gave it back to me. It took

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more and it took more and it took more and I'm telling you,

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it is a loser's game, trust me. I know this by firsthand

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experience. It never pans out over time. Doesn't happen.

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Okay? So just don't do it. If you have a loss, cut your

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risk. Cut your risk, cut your risk. Alright. Now let's

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assume let's stretch this out a little bit. Alright. trader

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one had a drawdown of 1300 dollars. Okay, one, eight losses,

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not one trade was a winner. All eight were losers. Well look

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at Trader two. Let's assume for a moment the guy hits. He's

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got a bad run, you know, he's got some problems in his

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personal life in 95 getting him, you stressed out his boss

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is driving and crazy. You know, he's rushing trades. He's

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not following the system. He's not feeling well. He's

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spending too much time in the forums and not really studying

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the charts. It's something that's keeping him from being

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disciplined, okay? He's not hitting on all four on all

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cylinders. Something's wrong. Maybe he's got a system

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doesn't work. Maybe he's a bank, he hasn't abandoned his bad

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habits. Bottom line is is he's not made a profitable trade

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yet. Look what trader two can absorb. He can absorb three

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times the amount of loss that trader one can. Following the

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same approach, the first loss, risking 2% the only draws and

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the 90 hundred dollars. Second loss, risking 1% now because

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he's trained back to his risk, he only loses $98. His draw

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down goes to 90 $700 In his account, now he's at one half of

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1%. And he stays there. Okay, all the way through up to 24

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losses, this gentleman or young lady could have a loss

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string of 24 losses and still be less than the first trader.

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Think about that. This guy or gal can have 24 losing trades,

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and still have lost less than the first trader on a trade

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because he didn't augment his risk exposure.

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You have to control the amount of risk in your account. If

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you do not do this, no one's doing it for you. I can't do it

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for you, your wife can't do it for you. Your husband can't

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do it for you, your kids can't do it. The broker certainly

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ain't going to do it. Okay. So you have to have this in your

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plan. It has to be mounted on the wall tattooed on your

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hand, it's got to be on your forehead. So when you see

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yourself in the mirror, you see this all the time, control

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risk. I can't stress it enough. Nobody talks about it enough

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in you have to do this, you absolutely have to do this.

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Okay? This will give you the the Viagra effect not to be

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crude, but it gives you the staying power, you have to be

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able to absorb losses. So I'm telling you these banks,

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they're ruthless, as good as my methods are I still get

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slapped around sometimes, okay, it's going to happen. Now,

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granted, when we dropped down to half a percent, okay, we're

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not probably going to make a whole lot of money coming back

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out of it. Sure, that's fine. But there's a, there's a

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strategy that we're employing. That goes a long way in terms

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of a profitable career. Okay, if you can absorb 24 losses

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and only have 12% drawdown, you're controlling risk. There's

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not a trader out there. Okay, that can beat their chest and

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say, I've been trading for five 810 years, okay. And I've

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never had an eight string loss. Okay, I'm telling you that

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they don't don't that's a unicorn, they don't exist. Okay.

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So you're going to have strings losses. I'm showing you how,

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even with a na, I've never had 24 losses, I'll give you that

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I've never had that string of 24 losses, but I've given you

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a shield. Okay? I've given you a mindset when you step out

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in that arena and risk your capital and you risk your money.

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This is your only defense, this right here, okay? It's not

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the trade signals. Okay? It's not the amount of money you

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put in the account to start with. It's the amount of money

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you put up. Because whatever you offer them in your hand,

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open palmed, they're going to take it if they can. So if you

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give them a large percentage of it, all you're doing is

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enticing more interest in taking it from you. Okay, so the

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moral of the story is, if you have a loss, cut your risk, if

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you if you have a loss, again, you cut your risk and you

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drop down to one half of 1%. Okay, and you stay there until

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we have a turn in equity. And when you start making money

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and start being profitable, okay, there's a way to going

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back to do your Original risk exposure, say your maximum

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risk exposures 2%. betrayed. Okay, how do we, how do we

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compensate for that? How do we get back to that? That point?

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Well, let's talk about that. Now. How do we, how do we go

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forward with this information? Okay, well, when we

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experience a loss, the first thing you want to do is number

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one, reduce risk. That's the absolute first thing you think

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in your mind not let me get back in and try to get my money

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back. No, you cut risk. Why? Because you already have a

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state of mind where you feel you're victimized, okay, I

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don't care how long you've been trading losses still haven't

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had an impact. Okay? I don't like losing. I hate losing.

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Okay. Because my method wins more than loses. When it

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happens. I don't like it. Okay, but I don't beat myself up

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about and going into, well, you know, I lost $500 I'm gonna

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get in here and trade, and I'm gonna try to make $2,000 on

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the next trade because I lost five. I want to get four times

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as much money back I'm gonna do it in half the time. I don't

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think like that anymore. I did. I'm gonna give you this. I

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did think like that years ago, but I don't need to do that

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anymore. Okay. And you don't need to do that. Now. If you

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haven't adopted that. bad habit, this is hopefully keep you

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from doing it. So, if you take a loss of 2% the next trade

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you will only assume 1% risk. Now, should this trade result

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in a loss, the next trade will only assume one half of 1%.

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Okay, you will only risk one half of 1% portrayed until you

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have made at least 50% of the draw down of the equity dip

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from the trade risking 1% of equity. Okay, so, in other

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words, the trade that you lost when you're risking 1%,

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whatever that amount is, let's say it's 500 bucks, you need

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to make $250 risking one half of 1% before you can trade up

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to the 1% risk portrayed here. Okay, now you're going to

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risk 1% per trade until you make at least 50% of the equity

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dip that you used when you risked 2% per trade, okay? So

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again, if you're risking $500 when you're risking 2% At 1%

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risk, you need to make at least $250 before you go back to

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risking 2%. If you lose, you go back to that system again,

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you drop cut in half, cut it in half cut in half. And now

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you have an opportunity to step back and say, Okay, I can

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take some blows, I can get knocked around, but I'm not

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getting taken out of the game. Okay, so now hopefully,

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hopefully, with this presentation, you can breathe. There's

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a way of doing it, guys, okay? And this is how it's done.

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You can't stay in this business without controlling your

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risk. That's the moral stick to the game plan, stick to the

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method of controlling risk using this approach, and

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absolutely guarantee, okay, you want the Holy Grail. This is

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the Holy Grail. This is it. You have to have a shield in

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this business. If you don't, your money is going to come to

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me. It's going to go to the central banks. It's going to go

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to the guys that know how to do this, okay, because I'm

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going to be in the game years from now, you know, and I'm

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going to still apply this approach when I have losses. This

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is how I do it. This is what kept me in the game. As long as

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I've been, it's gonna be a concept that I hold closest to

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me. Because this is more important than my entry signals.

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This is more important to my access. This is the absolute

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key Cornerstone to long term success in careers in trading.