"Risk-Return Management", "Psychological Management" and "Money Management" are three important pillars for the survival of those who invest and trade in financial markets. If these three parameters are not well known and assimilated, the chance of success in financial markets is 0%.
The "Risk-Return Ratio" is the ratio between the stoploss and takeprofit levels determined before entering each position. There is never such a thing as certainty in financial markets. There are always possibilities and probabilities are traded. While this is the case, the way to earn money is to achieve a percentage of success in the positions entered. If we talk about percentage success, the success rate in the positions entered with a risk-return ratio of 1:1 is willing to converge to 50% in the long run as per the theory of large numbers. Therefore, we need to find a mathematical solution to this probabilistic situation. The way to do this is to determine the stoploss and takeprofit levels with a risk-return ratio of at least 1:2 for every position entered. Here, in order to be able to invest and trade in financial markets, the first thing to know is the risk-return ratio and its importance. Then, the strategies and tactics that are the subject of fundamental analysis, technical analysis and price action analysis, such as when and how positions should be entered. Because, it is not always possible to invest and trade in every financial asset. While determining the positions to be invested and traded, one should act consciously. Afterwards, we must determine our stoploss and takeprofit levels by determining a risk-return ratio of at least 1:2 for each suitable investment and trade position, and enter them as pending orders on the platform.
"Trade Psychologies" is divided into two as "Positive Trade Psychology" and "Negative Trade Psychology". We can name positive trade psychology under one roof as "Comfortable Trade". We can compare the comfortable trading psychology to the way a master driver drives a beautiful, latest model car in traffic. We can define this mood and psychology as comfortable driving, in which a master driver demonstrates his driving skills in traffic with the comfort and functionality of the car that he drives. Likewise, a skilled financial investor, trader's ability to trade consciously and comfortably with his own knowledge and skills shows that he is in a positive trade psychology. Here, a rich variety of financial instruments is an ideal brokerage firm, and the website offers traders the opportunity to trade on financial instruments with a high volume and variety. This issue is based on choosing the ideal broker firm.
"Negative Trade Psychology" is the situation that almost every investor and trader experiences, but educated and skilled investors and traders have knowledge about the subject and know how to deal with negative trade psychology. People who are novice and have not sufficient financial knowledge and have not know what trade psychology is. Therefore, these novices and those who do not have enough education lose money every time because of their negative trading psychologies. Therefore, experienced traders investing and trading in financial markets do well in psychology management and are always in a comfortable trading psychology mood.
"Money Management" is another important parameter and is almost the roadmap of investors and traders. Money management is based on the correct using of the amount of money that you set aside for investment and trade transactions. Here, the concept of making a portfolio and managing this portfolio also comes into play.
According to money management, when determining your stoploss and takeprofit levels, it is ideal to have an average risk ratio of 1-1.5% on the positions that you open. Your rate of return should be twice your risk ratio, at least 1:2. That is, for each position that you enter, your stoploss level should be 1-1.5% of your balance and your takeprofit level should be 2-3% of your balance. It should be your main rule as "1% stoploss rate rule of your balance for each position".
For the sake of concreteness, we can give the following example: For example, we have $10,000 and we want to invest-trade. First, let's make a portfolio by dividing our current balance by 4. Afterwards, when opening positions in the financial instruments that we have chosen with a negative correlation between them and the stop loss ratio should be within 1% of the trade positions that opened from the right places in these instruments that each costing $2500.
1% of $2500 is $25. So, for every position we enter on instruments that we have budgeted for $2500, if we have a stop loss, we will lose $25, but if we win, we will gain $50 with a 1:2 risk-return ratio. This is the main logic of money management and it is intertwined with risk-return management. This is the path followed by professional investors and traders with proper planning and financial wisdom.
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