Understanding risk management is one of the most important steps toward becoming a disciplined trader.
```You must have heard it 1000000000000000 times till now.
I advise people to only risk 1% per trade to start. Once you learn and advance, you can bump it up to 2%.
You might be thinking:
“How am I ever going to become rich if I am just risking 1%? I will never double my money.”
If that’s your mindset, you might as well head to the casino and gamble your money away.
There really isn’t any difference between gambling and trading without risk management.
However, when you have good risk management, a trading plan and a sound strategy, you start to play probabilities.
```The edge is in your favor when you trade, unlike gambling where the edge is in the other person’s favor.
Risking 1% will give you small, consistent returns. Occasionally, you will get some big wins.
You need to trade smart and with these small wins in mind.
Over time these wins will compound and turn into something big and worthwhile.
```Even if you only returned 1% a month on average, that’s 12% per year.
The greatest hedge fund managers in the world would love a return like that.
You would have people lining up at your door wanting you to invest their money.
Protect your capital first.
The opportunity to grow comes after that.