P RO FESSIO N AL DIP LO MA IN FIN AN CIAL

TRADIN G & IN VESTMENTS

MODULE 1
LESSON 8: Risk Management
Course Educator: Gavin Gerrits
Risk Warning

Any Advice or information provided by the Shaw Academy is General Advice Only - It
does not take into account your personal circumstances, please do not trade or invest
based solely on this information. By viewing any material provided by the Shaw Academy
or using any information or tools you agree that this is general educational material and
you will not hold any person or entity responsible for loss or damages resulting from the
content or general advice provided here by The Shaw Academy, its employees, directors
or fellow members. Futures, Contracts for Difference (CFDs), Options, and spot currency
trading have large potential rewards, but also large potential risks. You must be aware of
the risks and be willing to accept them in order to invest in CFDs and leveraged forex
markets. Don't trade with money you can't afford to lose. No representation is being
made that any account will or is likely to achieve profits or losses similar to those
discussed in any material provided by the Shaw Academy. The past performance of any
trading system or methodology is not necessarily indicative of future results.
 Lesson Risk Management &
Agenda Protecting Your Capital

• Risk vs Reward Ratio (R:R)

Lesson 8
• Probability & Exposure

• Diversification

Financial Trading and Investment

 Lesson What Will We Be Learning
Outcome Today?

• Learn how to protect your capital before

you learn how to grow your capital

Lesson 8 • Ensure minimal risk exposure

• Define your risk acceptance levels

• Benefits of a diverse portfolio

Professional Diploma in Fitness & Weight Loss – Module 1

Financial Trading and Investment
A Good Trader Is A Great
Risk Manager
Is Risk Good or Bad!?

6
 Is Risk Good or Bad!?
It is neither one nor the other!
We Are Faced With Risk Every Day
Managing It Is What Really Matters

7
 How do you manage
risk when you drive a
car?

8
Financial Trading and Investment
 How do you prevent
yourself by getting
wet when you can
see its going to rain?

9
Financial Trading and Investment
 All Risk Scenarios Can Be Easily Managed

10
Financial Trading and Investment
 Understanding Risk
Reward is the probability of gain

Risk is the probability of loss

If you sell, there is a risk that the market

could rather rise, and you could suffer a
loss
How does one lose a trade?
If you buy, there is a risk that the market could
rather fall, and you could suffer a loss

Risk is unavoidable in trading as we can

neither control nor guarantee the direction of a
market
11
Financial Trading and Investment
 What is Risk Management?

Set of rules that define overall account exposure in trading

Is the art of only laying 1% or 2% of your entire account value

down on each trade that you place (Our Suggestion)

- How many trades would you have to loose is a row to blow your
account if you risked 10% per trade?

- How many trades would you have to loose is a row to blow your
account if you risked 1% per trade?

12
Financial Trading and Investment
The purpose of this entire course is to
teach you how to capitalize from the
markets.

The purpose of this lesson is to teach you

how to protect the capital that you enter
the markets with and also that you gain
from trading successfully

HOWEVER…

13
You should understand that the biggest
risk to your trading account can actually
be…

YOU!

14
Lets imagine you have $3000 in
your trading account, what would
sound better to you…?

A - Use that capital to trade and

make another $3000 from a
trade…

B - Save your $3000

15
Lets imagine you have $3000 in
your trading account, what would
sound better to you…?

- Use that capital to trade and

make another $3000 from a
trade…

RISK MANAGEMENT
COMES FIRST!

16
 Risk Management is the only way you are going to gain a
positive edge in the market and ensure account growth

Financial Trading and Investment

 Risk Management is the only way you are going to gain a
positive edge in the market and ensure account growth

Financial Trading and Investment

 Risk Management
Probability

1 Risk and Return are inextricably linked

2 Without Risk there would be no such thing as Return

3 People think that return will be greater with increased

Risk, hence lower levels of Risk typically see lower
return potentials

4 Your Risk and Reward ratios will be managed by

the Ultimate Trade Sizer
 Risk acceptance levels need to be tailored for
each person's risk tolerances

A balancing exercise between what return we

desire and what risk we can mentally and
financially cope with

Risk Management
This is very much a comfort issue from a personal
Acceptance Levels perspective

We must gauge our probability of success before we

can structure our financial risk management rules,
simply because our exact approach hinges on our
assumed probability

Financial Trading and Investment

A RISK:REWARD RATIO
CAN BE A TRADERS
SAVING GRACE
 Positive NUMBER OF
WIN LOSS
TRADES
Risk:Reward Ratio 1 $2000
2 $1000
3 $2000
When you trade with a positive risk to 4 $1000
reward ratio, your chances of being
5 $2000
profitable increase even if you have a lower
success rate 6 $1000
7 $2000
In this example on the right we are using a
8 $1000
1:2 RRR
9 $2000

In real world trading, risk-reward ratios aren’t always fixed. 10 $1000

They must be adjusted depending market conditions and
probability of targets being reached (Covered in UTP)
TOTAL $10 000 $5000
22
Financial Trading and Investment
 The Trader loses more on an individual
trade than they gain on a winning trade

Often the case with high accuracy

trading strategies as they give much
more downside room i.e. larger stop
Negative than target

Risk:Reward Ratio
This is a recipe for disaster as
accounts slowly but surely will
disappear into nothing.

Most Retail Traders fall victim to this

Financial Trading and Investment

 Positive Risk-Reward tends to profit
better over longer periods of time and
requires less manual input

Positive Risk-Reward gives the trader the

opportunity to capitalize on success and reduce
the risk of failure
= A successful trader
Positive vs Negative RRR Negative Risk-Reward ratios are designed to make
the trader feel good by being correct more often
In A Nutshell than they are incorrect

This appeals to a new trader's psychological

need for instant self gratification

Markets aren’t here to make us feel good.

They are here to provide traders with
opportunity, approach them wisely

Financial Trading and Investment

 Account Size Example
Unacceptable vs Acceptable Risk

All examples will focus on the account size being $10,000

This is convenient from an example perspective, but of course

you can scale up or down to mirror your own situation

Most new traders start with just

less than $10,000

25
Financial Trading and Investment
 Unacceptable Risk Exposure
• 10% risk per trade with 5 open positions and $10,000 account.
• All close at loss on the same day.
• Entirely possible and in fact probable that you will have 5 straight
losses at some point.
• What is the value of the account?
• 50% loss
• Down to $5,000

• To bring account back to $10,000, a trader must bring in a return

of 100% of current balance to just break even.
• This would not be a desirable position to put one’s self in.

Financial Trading and Investment

 Acceptable Risk Exposure
• Lets assume $10,000 account
• We decide to risk 2% per trade on EURUSD
• We are willing to expose $200 of our account, per trade
• We must then decide how far our protective stop must be

This is based on our Trading Strategy – which we must have, as trading

without a proven strategy is simply disastrous

• Lets imagine on this Instrument we need a stop loss of 100 pips

• Remember that a Pip value refers to the extent of a price movement

Financial Trading and Investment

 Acceptable Risk Exposure

$200 / 100 (Pips)

= $2 Per Pip

Financial Trading and Investment

 Martingale Method

1 Martingale Techniques increases the amount wagered

per trade as losses occur to cover those prior losses

2 A shocking amount of traders actually believe and use these

techniques

3 If the trader loses $200, doubles next trade to win it back,

loses $400 and so on

4 Martingale proponents forget the market HAS NO MEMEORY and

your funds wont last forever

29
Financial Trading and Investment
 Overall Exposure
To ensure the best possible results
for where you are right now, do not
have more than:

• 10 open trades at the same time &

of that ensure you have no more
then 3 open trades per currency
pair

• 5 pending orders at the same time

Financial Trading and Investment

PORTFOLIO
DIVERSITY
 32

What to Trade and What not to?

LetsTrade believes in providing it’s traders choice and
ability to diversify.

Exceptionally large range of Forex pairs. Access to

over 60+ separate currency markets. Institutional
transactional costs. Ability to trade the most liquid
markets.

60+ currency pairs, including all major Indices, all

Cat 03

precious metals and all major commodities

Financial Trading and Investment

 Knowing When to Enter or Exit a trade

1 We just trade the plan

not our opinion!

2 We enter at the earliest point possible

3 We then look to scale into highly profitable markets

4 Remember – We just SEE, ACCEPT and TRADE the Price!!

Financial Trading and Investment

 Boeing - How do you catch it?

Financial Trading and Investment

 UTP Indicator - Boeing

Signal to place
a Long order

Scale In

Financial Trading and Investment

 UTP Indicator – DAX

Signal to place
a Long order

Scale In

Financial Trading and Investment

 UTP Indicator - FB
Signal to place
a Long order

Scale In

Financial Trading and Investment

Let’s Take A Sneak Peak
 UTP – The Simple Trade Process
Step 1 – Market Selection

Financial Trading and Investment

 UTP – The Simple Trade Process
Step 2 – Apply The UTP Indicator

Financial Trading and Investment

 UTP – The Simple Trade Process
Step 3 – Note Levels of Interest

Signal to place
a Long (L) order
@ 1.4384

Financial Trading and Investment

 UTP – The Simple Trade Process
Step 4 – Open The Trade Sizer

FOUNDATION TRADING PROGRAMME

Financial Trading and Investment

 UTP – The Simple Trade Process
Step 5 – Input The Information

FOUNDATION TRADING PROGRAMME

Financial Trading and Investment

 UTP – The Simple Trade Process
Step 6 – Order Confirmed On Chart

Stop Loss Entry Order

Financial Trading and Investment

You have the right key to open a door to a
world of life changing opportunity

GO OPEN IT!
• 14+ HOURS OF LIVE ONLINE TRAINING • COMPREHENSIVE WRITTEN MATERIALS

• ACCESS TO VIDEO RECORDINGS • QUARTERLY TRADE REVIEW

• TWO FULL TRADING STRATEGIES • FULL SUPPORT

• DEDICATED TRADING SOFTWARE

+ UTP Indicator
+ Trade Sizer

39 p/m
• 14+ HOURS OF LIVE ONLINE TRAINING • COMPREHENSIVE WRITTEN MATERIALS

• ACCESS TO VIDEO RECORDINGS • QUARTERLY TRADE REVIEW

• TWO FULL TRADING STRATEGIES • FULL SUPPORT

• DEDICATED TRADING SOFTWARE

+ UTP Indicator
+ Trade Sizer

39 p/m
LetsTrade want to sponsor your
education!
Full Access to Ultimate Traders Program

Access to UTP Indicator & Trade Sizer

LetsTrade Club access (ongoing education worth 2000)

Trading Rewards up to 25,000

24/7 Platinum UTP Support

 How it works is simple!

Open a Live Account with www.LetsTrade.com

Fund Live Account (Minimum of 3,000 Deposit)

TRADE WHEN YOU ARE READY!

 See You In The
Ultimate Traders Program