How to be a

shark 101
“It's easy swimming in the blue ocean
when you a shark”
RISK MANAGEMENT
and
Psychology
Risk Management
• Risk Management is the process of identifying, assessing and controlling threats to capital and earnings.
• Risk Management include identifying trade objectives, trade management, and money management.
• Trade objectives include levels of take profit, stop loss, and entry price.
• Trade management refer to an ongoing monitoring of the trade as price moves, this is usually moving the stop
loss once the trade is in profit to secure profits, or exiting the trade when a signal is given that the initial
analysis is wrong.
• Money management is important, it is what will determine how long you going to be in the game.
• Without money you cannot trade.
• Money management encompasses a skill of determining how much of your capital you exposing to market
conditions.
• This is the percentage or amount of money you willing to lose.
• Risk to Reward ratio is an example of money management, and it is very crucial component of trade entry
criteria.
Risk Management
Trade Objectives
• It is important to know the levels to exit a trade before entry.
• This levels must define when in profit and when in loss.
• This is very crucial as it helps you to protect your accumulated profits when in profit and prevent further
damage to your capital when in loses.
• The price to enter might be underestimated but remember this price has an impact on the amount of money
you make or lose.
• If this price is close to take profit price, you make less money; and if it is far away from stop loss price you
stand to lose a lot of money.
• For example, if you buy at 1000 and set your TP at 3000 and SL at 500. If price hit TP, you make 2000 but if
hit SL you lose 500, but if on the same TP and SL price, and buy price is at 1500, the realised profit or loss
will be different. If TP hit, you make 1500 and if SL hit you lose 1000.
Risk Management
Trade Management
• Continual assessment of your trade is very important.
• This allow you to see if the initial signal given is still valid or market has changed sentiment, in such a case it
is wise to exit.
• Sometimes management can help you to spot a second or even a third opportunity to enter and maximise
profits.
• But this should be done with caution.
• Best practice is to enter risking your accumulated profit not your account capital.
• For example, if you in profit by a 1000, your second entry should not risk more than 1000.
• Moving a stop loss protects your profit if market change sentiment, it's better to exit with little profits than to
exit with a loss, breakeven is even better than a loss.
• Yor stop loss could be moved to entry price for break even or above entry price.
Risk Management
Money Management
• Money management is determining how much you willing to lose per trade.
• This can be in a monetary sense or percentage sense.
• One a large account this is calculated using percentage and on a small account you can use monetary value.
• Common practice with percentages is risking 1-2%.
• Risk to reward ratio is an important part of money management.
• Common risk to reward ratio is 1:2, meaning for 2% risk, you will gain 4% or for every 300 you risk, you will
gain 600.
• Another type of money management is the type of a full margin trader that deposit a portion of his trading
wallet into his trading account.
Risk Management
Risk Management in Practice
A trader analyse NAS100 and spot a buying opportunity. Upon that he realises that carefully planning of entry price
and exit price is very important, and he also decide to risk 1% of his 10000 USD account. The risk to reward ratio for
this trade is 1:2. The contract size for NAS100 is 100. The trader is going long on NAS100 with an entry price of
17344,60; Stop loss at 17279,30 and Take profit at17540,50. Before entry, the trader needs to determine the lot size for
the trade.
➢ 1% Risk = 100USD
➢ Loss/Entry difference = 17344,60-17279,30 = 65,3
➢ Lot size = x
➢ Risk to Reward = 1:2
100 = 65,3*100x
100 = 6530x
x = 0,015
➢ If the trader enters with a lot size of 0,01; the trader is guaranteed to make a profit of 200USD or a loss of 100USD.
 Risk Management
Risk Management in Practice
A trader with a 7000USD account wants to sell EURUSD on a standard account size. He risk 2% with a risk to
reward ratio of 1:3. If he plans to enter with a bid price of 1,13735; set stop loss at 1,13885; and plans to take profit
at 1,14185. Calculate the lot size for the trade.
2% Risk = 140USD
Loss/Entry difference = 1,13885-1,13735 = 0,0015
Lot Size = x
Risk to Reward = 1:3
140 = 0,0015*100000x
140 = 150x
x = 140/150
x = 0,9
➢ The trader will have a 2% loss on this account if he uses a lot size of 0,9.
 Risk Management
Risk Management in Practice
A trader needs to buy on a USDJPY pair with an ask price of 140,90; stop loss is expected to be at 140,50 and take
profit at 141,70 on a standard account. The risk to reward ratio for this trade is 1:2. On a 5000USD account, only 1% is
risked. Determine the lot size for this trade.
1% Risk = 50USD
Loss/ Entry Difference = 140,90-140,50 = 0,40
Lot size = x
Risk/Reward = 1:2
0,40∗100000𝑥
50 = 140,50
7025 = 0,40 * 100000x
7025 = 40000x
7025
x = 40000 = 0,18
➢ With this lot size on this account a trader can risk only 50USD to make a profit of 100USD.
Psychology
Psychology
• Everything in this world affect our psychology even the market does.
• This will in turn affect how we engage with the market.
• Emotions of fear, greed or over-confidence are prevalent with the lack of proper psychology training.
• FOMO is common among traders and leads to trading false signals.
• After a streak of losses Fear of losing can cripple a trader’s ability to place an entry.
• Greed can make a trader to hold on a losing trader with a belief that the market is going to turn around.
• Greed can make a trader lose a winning trade, because the trader still believe that the market is still going to
give more profits.
• A long streak of wins can make a trader think he is the god of the market and there’s no such thing as a god of
the market.
• This kind of over-confidence can make a trader over leverage, and open positions that his account can’t
handle which can lead to him blowing his account.
Psychology
• A great trader when interacting with the market needs to have no emotions, you need to trade like a ROBOT.
• This trader will not be excited about BIG WINS or stressed about his losses.
• Because we dealing with money reaching that kind of a state is touch but possible.
• A recommended practice is to trade money that you are not attached to.
• There are a few reads on the topic of psychology that each trade needs to read.
➢ Trading in the Zone by Mark Douglas.
➢ The Disciplined Trader by Mark Douglas.