The maths is simple. With a 10 percent drawdown limit and 1 percent risk, you would have to lose 10 trades in a row to fail. Drop to half a percent and that becomes 20 in a row, which is very unlikely.
So managing your risk is logical. The real question is why it is so difficult to actually do it, and that is what this episode is about.
Key takeaways
Risking half a percent means losing 20 trades in a row to fail, which almost never happens, yet traders still fail challenges in a week or two.
Most traders want quick results, so they increase the risk and throw risk management out of the window.
Traders get overconfident in one trade and cannot cut it, even when the market has clearly turned against them.
Without a plan for how many trades and how much risk per trade, you end up risking 1 percent here and 3 percent there with nothing to follow.
Knowing the right thing and actually doing it are different, and experienced traders often know exactly what to do but still cannot apply it.
New traders may not know lot sizing or their own odds, so they cannot set a sensible risk strategy in the first place.
Impatience and emotional attachment
The first reason is impatience. Traders want the result quickly, so they increase the risk and essentially abandon their risk management.
The second is emotional attachment to a trade. You analyse a trade, you believe in it, and it goes against you anyway. That is just the nature of markets, and sometimes you have to cut the loss short.
There is no reason to be overconfident about a single trade. Confidence in yourself and your strategy as a whole matters far more, because one trade is always unpredictable while a number of trades is much more predictable.
“One trade is always unpredictable, but it gets more predictable when you have a number of trades.”
No plan means nothing to follow
A lot of traders do not have a plan for how many trades they take per day or per week, or how much they risk on each one.
So it becomes confusing. You risk 1 percent on one trade, then 3 percent, then 2.5 on another, with no structure behind it.
You need a plan in place before you even start trading, otherwise there is no risk management strategy to actually follow.
Knowing is not the same as doing
You might have the plan and understand the logic, that risking less makes it far less likely you blow the account, and still not apply it. There is a big difference between knowing what to do and doing it.
This is especially true for experienced traders. You know exactly how it should be done, but discipline is the thing missing.
A good way to build that discipline is to set a target each day. Risk 1 percent today, then again tomorrow, and after 10 days without breaking your plan you have built momentum and a habit.
New traders and lack of knowledge
For inexperienced traders the problem is different. It is a lack of knowledge about risk management itself.
It can be as basic as not knowing how many lots to put on a trade. It also goes down to not knowing your odds, how often you are winning or losing, so you cannot set your risk around that.
In short, if you do manage your risk it is very unlikely you fail, and even if you do, you only lose an amount you can afford. You go back, find the mistake, and come back to succeed.
Once your risk management is solid, compare reliable prop firms with fair conditions on Propvator.