Risk management is not just a trading buzzword, it is an important discipline that is more important than chasing the latest trends or relying on intuition. It is a shield that protects your financial assets and mental peace.

However, surprisingly, many traders do not carry this armor when embarking on their financial journey. Once when I was exploring the market, I completely regarded media channels and market speculation as indicators.

Over the years, I have achieved exhilarating victories and experienced market fluctuations that left me bewildered and bruised. Both victory and defeat bring a lot of emotions, and traditional wisdom holds that emotions are the nemesis of traders. So, is there a trading method that won't make you age overnight? Is there a strategy that can help you sleep well night after night?

I am not an adventurous speculator, and my trading budget has always been kept within a relatively conservative range. Therefore, when the Bitcoin price soared to an astonishing $69000 in 2021, this cautious attitude did not make me a millionaire, but it also helped me avoid the pain of the subsequent plunge. Many bold and fearless traders are not so lucky.

If you consider yourself, like me, a cautious trader, you may feel that risk management is optional. This is a dangerous misunderstanding. Risk management is not just a safety net, it is also a personalized blueprint for achieving sustainable growth and a fortress against disasters.

I didn't always think like this before. On February 3, 2022, when META was hit hard, I suddenly realized.

That was in late January 2022, and since META reached its peak of $382 in September 2021, it was like riding a roller coaster. For several months, META has been fluctuating narrowly, as usual, back and forth between high and low points, which is the type of market that day traders rely on for survival. Then, February arrived as destined.

Just as a new bull market was about to take off, META hit rock bottom, plummeting 26% in just a few hours and losing $230 billion in market value. The trading industry is in an uproar.

Fortunately, I didn't go long on META, but I realized that if I had gone long at the time with my loose trading style, my account might have been completely wiped out. Since then, I have been seeking a comprehensive risk management strategy.

I have followed many clich é d advice: set stop loss and take profit, and diversify the investment portfolio. However, I think these methods are not innovative. Later, I accidentally discovered the compound effect of profit acceleration and realized that it provided more than just a growth plan, so I decided to give it a try.

I adopted the 20-20 principle and kept my investment budget at 20% of net asset value, with both stop loss and stop trading set at 20%. This means that the more net worth I have, the more I can invest. The lower my net worth, the lower my investment amount. I believe you have understood this method by now.

Not long after, I felt very restricted. I see the potential of the market and realize that either we need to close another order to release net worth, or we need to break the rules. This is frustrating, but it is also the essence of all risk management strategies. I almost gave up on this method, but later on, for fun, I did a crazy and incredible calculation.

Imagine, starting from $1000, investing 20% and increasing by 20% daily, how long would it take to reach $100000?  

On the first day, a 20% profit of $40 seemed insignificant, and I thought it would take several years for my account to grow. But what surprised me was that I only needed 119 days. In addition, by the 179th day, the net asset value of the account can reach 1 million US dollars.  

Of course, the possibility of such a winning streak is extremely slim, but setbacks will not restart the journey, only increase time. So, what if there is a prolonged series of defeats? Will the compounding effect limit my overall net worth risk?

It is also impossible to incur 161 consecutive losses from $1000 to $1 with the same 20% stop loss and take profit.

I was stunned to see these incredible numbers. At that moment, my trading style completely changed I know that risk management has overcome intuition and given me a more comprehensive risk assessment mindset.

Of course, I may occasionally expand the take profit rule to allow orders to stay longer in a market trend, but the 20% stop loss limit is sacred. I am well aware that even if I lose money every day for weeks or even months, I still have the opportunity to compete in the game, and my potential for success is unlimited, it just takes time.

If this article has inspired you and made you realize the importance of using a risk management system to protect your investments, then my task has been accomplished.  

Search the Internet and you will find many strategies worth considering. Accept risk management with honesty and practicality. Grasp the rhythm. Remember the "10000 hour rule": With each trading day, you are one step closer to becoming a top trader.