Wtf is risk management? The Basics 🧵

Risk Management is a crucial step in anything to do with finance. Whether you want to invest, trade, or flip colorful jpegs.

It's important to always practice risk management.

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In this thread, we are going to explore the basics of risk management.

What exactly it is, what to know and how to practice it in your day-to-day life.


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I. What is Risk Management

Risk Management is the process of analysing and mitigating potential threats in your investments.

It involves evaluating the likelihood of negative outcomes for your specific investment or trade.

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It also helps you to have a clearer picture of what your potential Risk and Rewards are.

Ideally, it stops you from even deploying any capital if the Risk is not worth it.

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It also tells you how much to invest, and how to calculate the Risk and Reward ratio for any trade.

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II. Risk Management in Practice

There are a few steps to always pay attention to

1.  Identify Potential Risks

2.  Evaluate the likelihood of identified risks and their damage potential.

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3.  Develop Risk strategies for each identified risk by considering their effects and how to mitigate those.

4.  Monitor the environment for changes in risk coming up

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III. Risk management use

This sounds all a bit complicated, doenst it.

But don’t worry.
All it takes is practice.

As an example how great risk management is, take the making of the average trader. Traders take an average of three years to become profitable.

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If they start with proper risk management this timeframe shortens to one year.

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IV. Risk Management Philosophy

1.  Rather miss out on an opportunity instead of going in unprepared.

Hasty decisions often come with heavy losses. There are enough opportunities in the future. Exercise caution always. Often it is more about avoiding mistakes rather

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2.  Limit your Risk and reap your rewards.

Set strict limits about what you are willing to lose and religiously follow this strategy

Also take profit on your targets
Nothing is more frustrating than getting greedy and not taking profit while the trade hit all your targets.

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In conclusion, Risk Management is a vital tool in keeping and growing your networth. By practicing it properly you will avoid a lot of mistakes that would have costs you a lot of money.

Thanks for Reading the thread, I hope you liked it.

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What did you like most or have problems understanding? Comment so we can talk about it.

Also if you liked the thread I’d be thankful for any likes and retweets.
It really helps with the algo.

You can read the unrolled version of this thread here: https://typefully.com/nft_associate/0qY9cpy