What Nobody Taught You About Risk Management. Part 1Bitcoin / TetherUSBINANCE:BTCUSDTEspeculador96 Numerous authors and communicators have addressed the importance of risk management, more or less comprehensively, but I have not come across any who present what I intend to share with you today. Once my presentation is complete, I will share some useful resources with which you can complement what you learn here, as I will only cover an important but small part of the topic: execution. What is risk management? Risk management is the planning an investor undertakes to protect capital and maximize profits. It encompasses factors surrounding the creation of a profitable system or method, the allocation of our capital, and the execution of our trades. Some key concepts: Risk-Reward Ratio The risk-reward ratio is a metric used in trading and investing to assess the relationship between the risk taken in a trade and the expected potential profit. It is expressed as a ratio, for example, 1:1, 1:2, 2:1, etc. Stop Loss (SL) The SL, or stop-loss, is an automatic order placed in a trading operation to close your position at a specific price, with the aim of limiting losses if the market moves against you. Take Profit (TP) The TP, or take-profit, is an automatic order placed in a trading operation to close your position at a specific price to secure profits when the market reaches a favorable level. It is the point where you decide to "take" your profits and exit the trade. Margin In trading, margin is the amount of money a trader must deposit or maintain in their account to open and sustain a position. Volatility Volatility, in the context of trading and financial markets, measures the magnitude and frequency of changes in an asset's price. Leverage Leverage in trading is a tool that allows investors to control a larger market position using only a fraction of their own capital. It acts as a "loan" provided by the trading platform, amplifying both potential profits and potential losses. Risk Management and Trade Execution: The most common problem among other investors, beyond psychological factors or lack of experience, is the absence of total control over their trades. They use random leverage, take entries with risk-reward ratios below 1:1, and some don’t even know what percentage of profits or losses they will have at the end of the trade. For an investor to execute a successful trade, they must meet the following criteria: 1. Ensure minimum risk-reward ratios of 1:1. 2. Properly allocate their investment capital, adhering to strict rules to avoid undermining their statistical performance. 3. Adapt to volatility and know how to adjust their leverage accordingly. 4. Set a fixed stop-loss (SL) price and determine what percentage of losses they are willing to accept per trade. 5. Set a fixed price for taking profits from the trade and know what percentage of profits they will achieve. Failing to meet these parameters will not only destroy traders’ profitability but also make it impossible for them to develop reliable investment systems and methods. Incorrect Execution: For example, if I see an entry opportunity in BTC/USDT, it would be a mistake to choose random leverage and plan to manually close when I think I’ve gained or lost enough. The volatility of the price chart itself may or may not require leverage, and that leverage must be adjusted to our risk management strategy. Trading in the manner described above is a recipe for failure, which is why it’s a lucrative business to allow inexperienced investors to access markets through online platforms. Correct Execution: Before explaining a practical case, let’s assume I use a $1,000 amount per trade and am willing to risk a 20% stop-loss (SL). These parameters are non-negotiable to avoid undermining my statistical performance. A few days ago, I took the trade shown in the chart. To enter this long position in BTC/USDT, the first thing I did was identify the entry point and the exit points for my trade (SL and TP). The trade met a minimum risk-reward ratio of 1:1, so I considered whether leverage was necessary. A volatility of 9.07% from the entry point to my SL price offered low profit expectations relative to what I was willing to risk from my margin per trade (20% of $1,000). I needed leverage. In the toolbar on the left, once you have a price chart open in TradingView, you can use the ruler to easily measure the percentage of volatility. How can I ensure that 20% of the margin I’m investing is triggered when the price reaches my SL zone using leverage? To calculate the exact leverage, we divide the SL percentage we’re willing to risk (20%) by the volatility percentage from the entry point to the SL price (9.07%). For example, my entry point in BTC was $109,898, and the exit point or SL was $99,930. I measured the volatility between the entry price ($109,898) and the exit price ($99,930), resulting in 9.07%. Since the volatility was somewhat low and I wanted to risk 20% of my margin per trade when the price hit my SL, I calculated the required leverage. To do this, I divided 20% (the percentage I was willing to lose per SL) by 9.07% (the volatility percentage from the entry price to the SL price). The result was approximately 2x leverage when rounded. In summary: At 2x leverage, we would lose approximately 20% of our capital if the price reached $99,930. Since I had a 1:1 risk-reward ratio before entering the trade, I assumed I would gain approximately 20% of the invested margin when the price reached $120,000. The trade was a winner, reaching the TP price without issues and generating a 20% profit on the margin I invested ($1,000). Use investment platforms that allow you to manually adjust leverage, such as 1x, 2x, 3x, 4x… 38x, 39x, 40x, and avoid platforms where leverage is set to default values like 1x, 5x, 10x, 20x, 50x… This seemingly minor detail for most small investors allows platforms to pocket large fortunes from failed trades. Conclusions and Recommendations: Risk management is the backbone of investors, and knowing how to execute entries with precision is rare among retail traders. Even so, I’ve only covered a small part of this topic. To complement this knowledge, I recommend searching on YouTube for the video by investor and educator Yuri Rabassa titled “The Secrets of Good Money Management.” This video will help you develop basic statistical skills that are vital for creating a trading system. Additionally, in the book *Forex Price Action Scalping* by renowned author Bob Volman, you’ll find a very insightful chapter titled “The Principle of Probability.” Final Note: If you’d like to take a look at my analysis log, you can find my profile in Spanish, where I transparently share well-defined market entries. Send your good vibes if you enjoyed this article, and may God bless you all.