Having the best strategy is not enough to make money from trading.

People often think that if a certain mentor has a working strategy, owning that strategy will make them profitable too. They are partly mistaken. In trading, the secret to sustainable, lasting success lies entirely in risk management — and in the discipline to follow it precisely.

When risk management is mentioned, people usually try to explain it briefly with lines like “Use a stop-loss, risk 2–3% per trade, don’t be stubborn with losses…”

Let’s approach risk management more professionally.

Assume you have an excellent strategy: 70% of signals end in profit. For example, out of 1,000 trades, 700 close with profit and 300 with loss. The take-profit distance per trade is 100 points and the stop-loss distance is 100 points. As a result, from 700 trades you gain 70,000 points, and from 300 losing trades you lose 30,000 points. Thus, across 1,000 trades you net 40,000 points. You analyze those 1,000 historical trades with precise statistics. The result is great: the strategy shows a 70% win rate, and net profit exceeds loss. It seems time to start trading live.

In the first months on a live account, everything goes well. In the first month you execute 30 trade signals: 22 winners and 8 losers. Net profit is high. Encouraged by this profitability, you now risk 3% per trade. That is, you have a $10,000 balance, and you place 0.3 lots per trade. If the trade wins, you make +$300; if it loses, −$300. One day you face an unusual situation: the 4th consecutive trade closes at a loss. 3% × 4 trades — roughly a 12% drawdown on the account. The streak scares you. In many cases, this creates aggression toward the market; the consecutive losses push you to break your rules. A feeling arises: “There is no way the next signal will be a loss. If I risk 12% on this one, I’ll cover all my losses and get the money back.”

You take the risk and place the 5th trade with 12% risk. The result — $1,200. With a $10,000 account, the remaining balance is now around $7,500. For the 6th signal you make a critical decision: the desire to enter with 3 lots to win everything back grows. You think you’re making a smart, logical decision based on probability theory. So you enter with 3 lots…

Murphy’s Law takes over. The signal you said “there’s no way it fails for the 6th time” hits the stop-loss. −$3,000. Main balance: $4,500 left. With a 70% profitability strategy, you have lost 55% of your balance. Everything you said was “impossible” turned out to be possible. You misjudged probability theory. Yet according to probability, even with a 70% win-rate strategy, the chance of six consecutive losses is about 0.07% — but it does exist. Even the 7th signal also failing has a probability of about 0.02%. First, note that strategies with a 70% win rate are very rare. For a 60%-win-rate strategy, the probability of six consecutive losses is about 0.41%.

Even though 0.41% looks small, it can occur once or twice a year. In general, the weight of Murphy’s Law shows up very often in financial markets and trading; it feels as if the market is waiting for you to fall into the trap.

Therefore, you must respect risk from the very first step. Even 1% per trade can be too much. As a maximum, going above 0.5% per trade is not a far-sighted decision. You must always be ready for the worst-case scenarios the market may present. Calculating all the probabilities and not slipping into euphoria even in the worst case is always the first step. The scenario above was written for a far-sighted, partially disciplined trader. 80% of traders, after four consecutive losses, deviate seriously from their strategy rules and face the danger of losing their entire balance. The combination of a winning strategy and an undisciplined trader applies to most beginners. In general, you should learn from others’ mistakes.

A winning strategy is not enough.

The best advice is to leverage extensive experience so that you are aware of the many serious risks awaiting you in your trading activity. Therefore, do not neglect education and continuous learning. These risk-management rules cover your side only. There are also broker-side matters — I would say quite serious risks. To understand the whole game more deeply, I invite you to professional training.