Why is risk management so important on every trade?

- So, in trading there are two types of outcomes possible on every trade a trader takes, the outcomes are,

- Now this is what happens in real trading, depending on how effective your strategy/system is, in the real market trades outcome happen like this in a row:

which means that there is more loses than wins…..

So now there are two major problems traders make:

1. Having a risk to reward ratio of less than 2.x the risk, which looks more like this,

and in scenarios like this you will end up losing money and this is the reality of most traders

Here is what 1:1 mean, 1:1 means if you risk $50 on a trade then if you win you get $50 and if you lose you will lose the $50 that you risked. So, it's more like $50:$50

2. Risking different amounts when taking trades, here is what I mean, you risk $50, $60, $40 and so on – different amounts. This is money management chaos

How to do it correctly? How Pro traders are doing it?

1. Your risk to reward ratio should at least be 2.x the amount you risk, i.e., 1:2 which is equal $50:$100. and this is the first step of being profitable

2. The second thing you need to do is risking a consistent amount. i.e., risking $50 per trade consistently and this is money management at work

And here is what it means really, it means if you risk $50 and your trade wins then you get $100 and if your trade lose then you lose $50. Then in this case the outcome would be that winning trades total to $300 and losing trades total to $250 and if you subtract losing trades from winning trades then you get $50 profit

What does this mean? It means that you ended up being PROFITABLE while you lost many trades compared to the winning trades

Here is the formular to make sure that you lose a fixed risk amount: Position sizing (in Lots) = Risk(is dollars)/Stop loss(in pips) * Pip Value(per lot)

I have created this pullback trade entry guide, check it out: https://www.pipslearn.com/article/2025-10-27-08-51-27-here-is-how-to-enter-pullback-trades

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