Read on Twitter
1) I wish Twitter allowed more words. But they don’t, so I’ll make a thread.
When trading, you need to understand not only what risk/reward means, but also what risk management means. All of these YOLO “ALL IN” posts are RIDICULOUS. Yes, some people turn $20K into $1M.
When trading, you need to understand not only what risk/reward means, but also what risk management means. All of these YOLO “ALL IN” posts are RIDICULOUS. Yes, some people turn $20K into $1M.
2) They then take the $1M and attempt it again, only to lose it all.
You must manage your risk when trading. You should only be willing to risk a maximum of 2% of your portfolio. Some suggest 5%. I say 2.
‘Frank what does this mean, explain it to me?’ Alright.
You must manage your risk when trading. You should only be willing to risk a maximum of 2% of your portfolio. Some suggest 5%. I say 2.
‘Frank what does this mean, explain it to me?’ Alright.
3) Let’s say you have an account with $5,000. You take a trade. Let’s say you buy $T at $30. If you’re trading equity and not options, let’s assume you put the entire $5K on $T. This means that you need a stop loss set at 2% of your overall portfolio which, in this scenario,
4) would be $29.40. You get stopped, you’re out. Done. Doesn’t matter if it goes to $35, you don’t chase it. You’re done. Move to the next.
Now let’s talk options.
Let’s say you’re buying $F $12 calls. Would you put $5K on it? NO! With options, you would put 2%.
Now let’s talk options.
Let’s say you’re buying $F $12 calls. Would you put $5K on it? NO! With options, you would put 2%.
5) This equates to $100 worth of $F 12 calls.
Why? The market is based on psychology. Imagine putting your entire portfolio on something and watching every single tick - 12.01, 12.02, 11.95, etc, it would make you entirely too emotional.
Why? The market is based on psychology. Imagine putting your entire portfolio on something and watching every single tick - 12.01, 12.02, 11.95, etc, it would make you entirely too emotional.
6) So you risk a small amount on something you believe could work. And if you lose it, you’ve only lost 2% of your portfolio. Then you try again with something else.
Risk/Reward
You should try to find, in the options market, things that can be risking 1 to make 3 or more.
Risk/Reward
You should try to find, in the options market, things that can be risking 1 to make 3 or more.
7) In this portfolio example -You’re risking $100 to make $300+.
This is ridiculously important. Please. If you hear nothing of this message. Please. Stop YOLOing into positions with HUGE sums of money. It rarely works. And even if it does, it’s very quickly lost due to euphoria
This is ridiculously important. Please. If you hear nothing of this message. Please. Stop YOLOing into positions with HUGE sums of money. It rarely works. And even if it does, it’s very quickly lost due to euphoria
8) - people feeling that they are Gods and have ‘figured it all out.’ The market has a way of putting you back in check. L
Lessons are learned through either pain (physical, mental, etc.) or financial crisis.
My goal is to prevent anyone from ever experiencing either of those.
Lessons are learned through either pain (physical, mental, etc.) or financial crisis.
My goal is to prevent anyone from ever experiencing either of those.
