Trading World Champion Reveals: The #1 Reason Traders LOSE (and How to WIN Every Time)

The real reason why 99% of retail traders lose their money. But there's one rule: 90% of traders lose 90% of their money in 19 days.

Why?

Because they have no clear risk management. The risk management behind is often, I choose 1% or 2% of my capital for my risk, and this is boring.

This is not good. I explain you today what is the real reason to make a good money and risk management for yourself. And please listen, it is so amazing, you have to know it. Who I am?

I'm Thomas Forwald, I'm the Champions Maker. I teach people like Patrick Nill, the 2 times World Cup Championships of Trading leader, or also Christoph Radeker, my style of trading. And you can trust in me, every one of them is able to use this risk tools.

Yes, today we're going to take a deeper look at how I actually build my structure so that I understand when I'm allowed to trade and when I'm not. That sentence alone is questionable for many. Which products can I trade and which ones can't I? And I'll start with stocks, then move on to futures and show you just how dangerous it is when you don't have your key figures under control and what really matters in the end. Therefore, I can promise you one thing: What I'm showing you today is the essence of being able to practice the profession of a trader sustainably in the long term. So, stay tuned! I'm putting a lot of effort into telling you this with a bit of joy because I know it's dry, but it's the most, most, most important thing. I had promised you that I would show you my idea for the Avis short squeeze, which I presented the other day, in detail from the risk profile perspective. And the first thing is, I had an idea, and the idea was, this is a short squeeze, it's not substantial, and that's why it should go short. Now, there are many who go short here, short here, short here, And I used to do that too, because I thought something was too expensive. The first and most important insight is: always wait for a real setup so that you have reference values. Without reference values, there's no chance of surviving in trading in the long run. That means you need a stop loss, and you need a predefined target where you end your trade. I know that sounds very simple to many, but the truth is, very few people do it that way. And that's why I want to show you this. The next thing is, once you have these key figures for yourself, in this case, our stop loss is at 730, my entry at 630, and my profit taking at 230. What does that even tell me? It tells me I have a risk-reward ratio of 4. That means my reward is 4 times as large as my risk. And now let's go one step further, because now you'll notice something, and let's make the following assumption. Let's just assume for the sake of argument that you have theoretically €100,000 available for trading. That's about $116,000 depending on the exchange rate. Let's just leave it as it is. And now comes this nice story: I take a 1% risk on every trade. How can I even know how much risk I'm taking? And that is the most crucial thing. I need to know exactly how many consecutive losses the strategy I'm using has. In this case, it's a strategy with a setup, a counter-trading approach, and I'll just say and claim that I have a win rate of 30%. 30% sounds catastrophic, doesn't it? No, it's actually not, and that's what I want to show you today, but we'll get to that in a moment. Look here: entry 630, stop loss 730, exit 230. The currency is US dollars. What's the result? A risk-reward ratio of 4. And now comes the crucial part. I can short 12 shares if I take a 1% risk, but now I go ahead and say, wow, this is such a cool trade, I'm going to take a 5% risk. Look, now I'm also allowed to, uh, in quotation marks, short only 58 shares and need a win rate of 20% to theoretically make money. But now it goes further, and that's what really matters in the end. So I'm using this wonderful tool here, the so-called Equity Curve Simulator, and enter the following key figures: starting capital, win probability, ratio of winners to losers, so our risk-reward ratio. And let's say I make 100 such trades in total this year. Now I'll say 5% risk per trade and start the simulation. Man, that looks absolutely fantastic! But look at what happens here. The maximum drawdown with such a strategy goes up to 43.7%. We'll start the simulation again. Now we even reach 46.8%. What does that mean? That means a huge problem for me. And why? And many people don't understand that. I'll show you now. Please remember, 46.8% is my drawdown. That's this area here. What does that mean? Let's remember once again, we're going in with 5% risk per trade currently. That's a lot. Others say no, that's okay for stocks. I can tell you the following: if you reach this loss curve that we just saw, so 46.8% as the maximum drawdown, and if you take a 5% risk per trade, what does that really mean? Well, it means that in the end, if you experience this kind of drawdown, you would actually need to achieve about an 85% return just to get back to zero, to break even. Well, why is that? Quite simple, because your capital will shrink from €100,000 down to, well, about €55,000 if you experience a drawdown of, let's say, 45%. And what does that mean for you? That's relatively simple. It means for you that if you have to calculate your shares as a percentage of your capital, you suddenly only get to calculate your 5% on €55,000. This means you have far fewer units that you're allowed to buy than what was possible with your initial capital of $100,000. That's why I really, really want to ask you, mathematically speaking, you should never allow more than a 20% drawdown of your trading capital, because even then you already need a 25% gain just to break even. But that's okay. But now look at the jump when you're at a 30% or even a 40% drawdown. That is catastrophic. Many people aren't even aware of this. But let's move on. So we know now that it's unrealistic if we enter this trade with a 5% risk, and so we must adjust our position size accordingly to the maximum occurring drawdown ratio. And we could use the table again to approximate that. But we can also say, if we work with 1% risk and happen to take a loss, then we're down $1,200. With €100,000— let's ignore the exchange rate for now— and with 20 consecutive losses, we're already at $24,000 here too. That's already over 20%. This means that even 1% risk per trade is often too much. And it's even more interesting when you see the number of units you get here. Let's head over to futures trading and take a look at it there. And after that, I'll show you something very exciting. Let's take the DAX future, which many like to trade in the mornings, as an example. And what we see here is, for example, a trading idea. I want to go short here, okay? And here I set my stop loss above the last supposed high. Whether that makes sense or not is another matter. That's what I'm predefining. And down here is where I want to exit. This is where many fail because they take profits as soon as there's a tiny twitch. But what is the problem with that? The problem with it is simply the following: if we enter the corresponding numbers into the table here for the images I just showed you, we'd have an entry price of 24,185. Our stop loss, 24,220. Our exit at 24,120. What does that mean? It means that we have our risk here, our entry here, and our exit right here. What does that mean further on? Furthermore, it means the following. It means that you're not even allowed to trade the DAX future with a €100,000 account and a stop loss of 35 ticks. Why not? Because your loss would be greater than 0.5%. How do I get to 0.5% risk per trade? Quite simply, I know my strategy's key figures and know that if I were to take a greater risk with this way of trading, I'd have suddenly a possible drawdown in sequence of more than 20%. So let's move on. Look, if we had 1% risk, we'd be allowed to trade 1 contract. What does one contract mean? One contract means that we would have a stop loss of €875. Yes, but now 1% is after all more than 875, namely 1000, and I can't trade €1000 with this. And many don't know their products, because you can also, for example, go and say, I'm trading FDXM. That's the mini, it has €5 per tick. Or you can even say, I'm trading the FDXS. And now you also have to know the fee structures, because here you can suddenly trade 28 units. That's €3 more per point that you win or earn and are beneficial for your respective strategy and structure. But only if the corresponding fees are right. These fees here are fictitious, they don't fit. That is just very, very important. And you have to know all such things in depth. Because now we come to the last point. Yes, in the last point, it's now very important to face the truth and be honest and just see, is what I'm saying actually all really true? Look, what do we have to do? For example, we have the possibility here to enter our cost of living, and let's make it fictitious. Say someone needs €4,000, you live alone, have a €100,000 portfolio or prop trading account, You have 18 trading days. And as we just took the FTXS, so the smallest DAX contract, €1 per point, and you trade 28 units of it per trade, that means a tiny bit more than one large DAX future, I've entered 0 for the tax rate here now, 0%. That is of course almost always nonsense. We all have taxes to pay, but— what am I getting at? Look, if you average 8 points a day in the DAX future— now many say, oh, that's totally easy— then you start building wealth. That means at the end of the month, after you've spent your money, something is left over. Let's do an honest calculation. If we enter real facts here, namely, for example, 28% tax, so 25% plus solidarity surcharge roughly, then you already see Okay, I theoretically need per day a result of 12 points on average to build up wealth. And if I am really good, then I have, for example, 20 points in the DAX per day, then I build up every month a nice €3,257. Yes, and that is exactly what many people do wrong. They neither calculate their cost of living, nor are they honest with themselves about how many points they really earn on average daily. Nor are they aware that there are also taxes to be paid. And as it turns out, very few people are even in a position to truly know or fully understand what position size they are actually allowed to take for the corresponding trades they want to make. Because let's go back to our image for a moment and consider this. If you have, for example, a hit rate of 60%, which means that out of every 10 trades you make, you win on 6 of them and lose on 4. And you have an average risk-reward ratio of 1:1, because that is often the reality. I see that with many traders because they very often exit their trades much too early. And now you have, let's say, theoretically 4 trades a day that you have chosen well. Then that is in a year, let's say with vacation and what have you, 800 trades. And what kind of real result comes out of that if I am allowed to take 0.5% risk per trade? Then I already see, okay, that all looks great. It is also absolutely great in terms of drawdowns. Everything fits. By the way, the low drawdowns here result from a real win probability of 60% and the fact that you really always stick to your corresponding stop losses. And then you also have the opportunity to earn a lot of money, but unfortunately very few people succeed in doing that. Therefore, this here is the essence. And if you are honest with yourself here, if you honestly know your key figures, if you know how much tax you pay, if you know how many contracts I can really trade per trade, if you know that you can trade, for example, 2 contracts or 1 contract in the S&P future because you are only allowed to take 0.5% or even less risk per trade, then you are on the winning side. And very few people are really aware of that. I hope you enjoyed the video. I hope it did not bore you too much, because I can give you one thing to take away: great opportunities are not always the best trades unless your risk is huge. And that is the problem. Most people have very high risks when they see very great opportunities. And trading is a stable generation of points. And this stable generation of points, you have to be honest with yourself there. And then you will get very clear results, and you will also clearly see what it is that I can really expect sustainably with my compound interest now. So stick around. I hope you've been listening up to now. Feel free to leave a like because this is the essence of how trading will truly work sustainably. Thank you very much.