What's the best risk management plan for trading?

What is risk management in trading?

Risk management is the practice of controlling how much capital a trader puts at risk on any single trade, balancing the need to risk enough to earn a reward against the need to protect the account from being wiped out. The video describes it as the discipline that sits between a trading strategy and a trade plan.

The video says risk management means deciding how much of an account's capital to put behind a trade in order to try to capture a reward, for example risking a set amount to try to make double that amount, while making sure that amount is never so large that a single loss, or a run of losses, threatens the account itself. One speaker gives a deliberately exaggerated example: risking 50 percent of a 100 dollar account to chase a win. On a 100,000 dollar account, the video says, that same percentage would mean putting 50,000 dollars on one trade, a size the speakers call reckless once you see it at that scale.

The video also frames risk management as the last of three pieces a trader needs, after a trading strategy (how to read the chart and find setups) and a trade plan (when and where to enter). Risk management, in this account, is what decides how much size sits behind the entries the strategy and trade plan have already identified.

What risk management plan does the video recommend for beginners?

For a beginner, the video says a small, fixed percentage risked on every trade is the starting point, kept low enough that a losing streak does not end a trading account or a prop firm evaluation before there has been time to gather real data on the strategy's win rate.

One speaker describes starting a funded evaluation risking 1 percent per trade on an account with a 10,000 dollar drawdown limit, and immediately feeling the effect: a single 1 percent loss left only about nine more losing trades before the drawdown limit was hit. In response, the risk per trade was cut to roughly a half percent, and later to as low as a quarter percent, while the strategy's data and win rate were still being built up. The video frames this as a lesson learned by trial rather than a rule that was known in advance.

The video sets out a rough process for how a beginner's risk plan should take shape, moving from learning to risking real money:

1. Learn the trading strategy first, including how market structure and price action work, before position sizing is a consideration at all.
2. Test the strategy on a demo account or by manually reviewing charts, tracking only whether each setup would have won or lost, since the video says the dollar amount risked does not matter yet at this stage.
3. Use that win-loss data to build a trade plan covering when, where and in which trading session the strategy is taken.
4. Start risking real money with a small, fixed percentage per trade, which the speakers describe using figures between roughly a quarter percent and 1 percent.
5. Track any account rules, particularly prop firm drawdown limits, and size trades so that a realistic losing streak does not exhaust the number of trades allowed before the limit is hit.
6. Build up a track record of live results and confidence in the setups being taken.
7. Once there is enough data and experience, consider moving from a fixed percentage toward a more dynamic approach, described in the next section.

The video is explicit that this fixed, low-risk starting point is a personal account of what worked for the speakers, not a universal number, since risk tolerance is described as different for every trader.

Should a risk management plan be fixed or dynamic?

The video describes two different approaches used by its speakers: a fixed percentage risked on every trade regardless of conditions, and a dynamic percentage that changes based on the trading session, the account type, or how the day's trading has already gone. Neither is presented as correct for everyone.

One speaker describes a fixed approach on a personal live account, risking a consistent 2 percent per trade. The other describes a dynamic approach on the same type of account, risking 1 percent during a session described as secondary (London) and more during the session described as primary (New York), and increasing size further on a given day if earlier trades in that session have already produced a profit "buffer." The video says this buffer changes the psychology of the remaining trades, since a trader who is already up for the day is risking a portion of the day's own profit rather than only the account's starting capital.

The video also says that most traders end up somewhere on a dynamic spectrum without deliberately choosing to, because confidence and risk appetite naturally shift as a session goes well or badly, even for traders who believe they are following a fixed rule. The speakers argue that a fixed, low-risk plan makes sense early on, precisely because a new trader does not yet have the data or confidence to make dynamic adjustments in a disciplined way rather than an emotional one.

How does risk management change across demo, challenge and live accounts?

The video describes risk management changing by account type, because the consequence of a loss differs on a demo, a prop firm evaluation, a funded prop firm account and a personal live account. The table below summarizes the approach each speaker describes using on each account type, as a personal account rather than a recommendation.

| Account type | Risk approach described in the video | Reason given in the video | | --- | --- | --- | | Demo or manual chart review | No dollar or percentage risk tracked; only whether the setup would have won or lost | The video says the goal at this stage is purely to learn the strategy's win rate, so the size risked does not matter | | Prop firm evaluation ("combine") | Heavier risk, described as close to full margin in one account | The video says failing an evaluation only costs the entry or reset fee, so more size is used to try to pass it quickly | | Funded prop firm account (still live but under firm rules) | Much lighter risk, described as low as 0.25 percent early on, tied closely to the firm's daily and overall drawdown rules | The video says funded rules such as daily drawdown limits have to be respected or the account is lost regardless of the trader's own risk tolerance | | Personal live account | Fixed around 1 to 2 percent per trade in one account, adjusted by session and daily profit in the other | The video says live capital changes the psychology of a loss compared with prop firm rules, and, once past a funded evaluation's fixed limits, a trader can size trades around session and account performance instead |

The video is clear that the two speakers arrived at different personal answers within this same general shape, and repeats that a workable percentage for one trader's risk tolerance may be too high or too low for another trader.

Why do the traders in the video say trading is not gambling?

The video argues that trading is not gambling because a trader with a tested strategy has an edge, meaning a known win rate built from data, while a casino game like roulette has a fixed, unchangeable probability that never moves in the player's favor no matter how much history is reviewed.

The video's example compares a single-number roulette bet, with roughly a 1-in-37 chance of winning (36 numbers plus a green zero), against a trading strategy with a win rate the speakers describe as around 60 to 70 percent, based on data the trader has collected from past setups. The video says a roulette player cannot study "previous data" on the wheel to improve those odds, but a trader can study the market's own patterns and history, and adjust a strategy accordingly.

The video also makes the point that risk management itself is what removes the gambling-like behavior from trading. Betting an entire account on one trade, the speakers say, is functionally similar to putting all of a gambling budget into a single spin, whereas managing risk with a small, planned percentage of capital is closer to a calculated business decision than a bet.

One speaker also recounts an early trade that the video explicitly describes as luck rather than skill: turning a 100 dollar account into a 150 percent gain in one night by holding a position through a major "red folder" news event, without understanding position sizing or the news event itself. The account was lost again the next day repeating the same approach without a strategy behind it, on another red folder news day. The video uses this story specifically as an example of what risk management is not.

What does the math of a drawdown mean for a risk management plan?

The math of a drawdown means that after an account loses money, the percentage gain needed to return to the starting balance is always larger than the percentage that was lost, because the gain has to be calculated on a smaller remaining balance, which is why the video treats capital protection as more important than chasing a big win.

The video gives a specific example: an account that loses 50 percent of its value needs a 100 percent gain, not a 50 percent gain, to return to its original balance, and even after that 50 percent is won back the account is only at 75 percent of where it started, not back to even. A second example in the video covers a trader with a 60 percent win rate on a 100,000 dollar account who happens to lose the first four trades of ten before winning the remaining six: those four losses at 1 percent each bring the balance down to around 96,000 dollars, so winning 1 percent back is only about 960 dollars, meaning the trader needs a run of wins worth roughly 5 to 6 percent of the current balance just to recover the original 4 percent that was lost.

The video's point in raising this math is that a risk management plan has to account for the order losses and wins arrive in, not just the overall win rate, since a losing streak early in a sequence makes the recovery percentage larger even if the strategy's long-run win rate has not changed.

How does risk management affect a trader's emotions?

The video says the size of the risk taken on a trade has a direct effect on a trader's emotional state while that trade is open, with oversized risk making a trader watch every price movement anxiously and undersized risk removing so much stake that a win barely registers.

The video describes risking too much as watching "how that candle moves" with the emotions fully engaged, which the speakers say leads to less logical, more reactive decisions mid-trade. One speaker describes an early funded account experience where a single 1 percent loss equaled 1,000 dollars, an amount described as the first time that speaker had personally lost that much money in one trade, and says the emotional reaction to seeing that loss prompted a switch to a lower, fixed risk percentage until more experience and data had been built up.

The video also warns against the opposite extreme, describing under-risking as a real and common mistake, not just an overcautious but harmless choice, since a trader who wins most of their trades but risks too little on each one earns less than the strategy's own win rate would otherwise justify. The video frames the right risk size as a middle ground: large enough that the trader has "skin in the game" and takes the outcome seriously, but not so large that the trade's outcome overwhelms the trader's judgment while it is still open.

The video also connects this emotional effect to drawdown accounts specifically. One speaker describes initially cutting risk after entering a drawdown on a funded account, without yet having strategy data to justify the original size, and says that reduced risk was what allowed the account to trade back out of the drawdown, framing this as evidence that dropping size during a losing stretch can be a deliberate risk management response rather than only a fear reaction.

What do independent statistics say about the risk in trading?

Independent regulatory and market data exist alongside the video's personal account of risk management, and are worth reading against each other rather than treated as the same kind of claim, since the video describes one small group's approach while the statistics below describe market-wide outcomes and scale.

ASIC Report 828: Risky business records that 68 percent of Australian retail CFD investors lost money in the 2024 financial year. This figure comes from the regulator's own market-wide data, independently of anything said in the video, and it is a reminder that a majority of retail participants in this type of leveraged product did not end the year in profit, regardless of the strategy or risk plan any individual trader was using.

BIS 2025 Triennial Survey reported average daily OTC foreign-exchange turnover of US$9.6 trillion in April 2025. This figure describes the scale of the global institutional foreign-exchange market as a whole, not the outcomes of individual retail traders inside it, and it is included here only to give a sense of the size of the market the video's speakers are trading within, not as a claim about what any retail account can expect to earn from it.

Neither of these two facts confirms or contradicts anything the video's speakers say about their own personal risk management approach, since the video is a first-person account of two traders' experience and the statistics describe the broader retail CFD and institutional FX markets. Read together, they support the same underlying caution the video itself repeats: that risk management exists specifically because losing money while trading is common, not a remote possibility.