Three most fundamental but vital trading concepts that you have to fully understand

Any trader has to go through a long period of hard time on the road to success, and every time he/she makes a major leap in experience, it inevitably comes with a huge cost in money and time. The speed at which you make progress depends on your perception of the market, your own attitude, and your methods and means of learning.

Today, let's talk about the three most fundamental but important terms in trading: risk, profit and probability. Clarifying and implementing these three points will make your trading path much easier.

First, calculating your trading risks 

80% of traders lose money. The key point is to change your mindset. From the early stages, you should establish correct concepts. Extreme trading experiences can be very exciting, but they always end up tragically. 

So what exactly are we trading in the financial market? In some sense, we are trading risks. Every single transaction is based on your measurement of risks and they are indeed where the profit comes from. 

The simplest way to measure risks is the loss of funds between the entry point and your stop-loss point. Take the example of WTI CLH 20 due March for example. In this specific contract, every volatility of $1 is worth $1000. It is decided by the fact that every contract in CL includes 1000 barrels of West Texas Intermedium crude oil. 

Hence, if a trader buys 1 CLH20 contract at $52.30 and sets the stop-loss point at $52.10, the potential risk for this transaction then would be $1000*0.2, or loss of $200 per contract.   

As we have mentioned in many articles, do not bear over 2% of risks in one single deal. It is a vital survival skill. Calculating by 2% risks, even if you need to bear 10 consecutive losses, you still have a chance to earn it back in a proper time.