When it comes to being a profitable day trader, whether you are in forex, commodities, stocks, options, indices or crypto, you must have a set of rules when you are trading. This must include rules like for entries, exits and position management. Most traders have their own unique strategies and reasons, but no matter which one of those assets you trade, all traders in every sector agree on one thing, and that is risk management.
Whether you are simply buying crypto to hold for the long term or you are planning to go in a high leverage forex trade, risk management will be your friend. If you don’t have risk management, even the smallest of trades can blow up accidentally. This is because there are multiple ways you need to manage your risk.
The most common way people manage risk in trading is by setting a stop loss. Setting a stop loss ensures you never lose more than the size of your stop loss and thus you manage your risk properly. The only problem with this is that many traders tend to trade emotionally, and they don’t accept these losses so they would move their stop losses in order to give them a better chance to win, but all this does is up their risk and up their potential for blowing up (losing all their capital)
One of the most effect ways to manage risk is proper position sizing. Many traders don’t size in properly because they don’t calculate their lot sizes or the pips that they want to trade. As a result, they can have improper sizing and risk more than they should, and very rarely, risk less than they should. This creates a lot of inconsistency in your trading results; it can even lead to blow ups of capital as well.
So, gathering all that information, you can clearly see that you need both proper position sizing and a stop loss. But let’s address the big problem that we see here, and that’s the problem of emotional discipline. This is what causes traders to do things they should not do while trading because they have no discipline, and they make mistakes which lead to blow ups. This concludes that the best risk management that you can learn is emotional discipline. If you can manage yourself properly then you will be far less likely to accidentally blow up or make mistakes because of your emotions.
(Just my opinion, not financial advice)