I understand the basics of risk management (the math, stop losses, rules-based trading)…
Recently graduated to looking at metrics like the Sharpe and Sortino ratios and realized I’m kinda’ just winging it.
So my question is, how should a beginner look to evolve/improve their risk management strategies?
Or, what did your risk management evolution look like?
I was in the same place. I started with the basics,stop losses, risk-to-reward ratios, and sticking to a strategy. Over time, I focused more on being consistent and tracking my trades to see where I could improve. One thing that helped me, was adjusting my trade size based on market conditions.
You’re ahead of probably 95% of retail traders, there. This speaks well of your chances.
These are both completely unnecessary and completely unhelpful to retail forex traders.
You need to understand Profit Factor well and clearly. Not Sharpe or Sortino!
Just read “Profitability & Systematic Trading” by Mike Harris. That’s all you need. But you really do need that. Don’t try to substitute online information for what’s in that book, because as a recent-ish trader/learner, you can’t possibly distinguish between information and misinformation, and there’s overwhelmingly more misinformation (and “agreement” about it!!) online than there’s information.
Becoming successful - even having any realistic chance of becoming successful - is all about deciding whose guidance you want to listen to.
I suggest that a long established, accredited, respected, peer-reviewed, recognized textbook that has stood the test of time against a background of market changes, puts the odds strongly in your favor, while online “information” stacks the deck strongly against you.
Just my suggestion!
Thanks for the reply!
Can you elaborate on this please? Not necessarily your strategy but the principles behind it?
Which comes first, the profit factor or the trade? I mean, can you think about a trading situation with profit factor in mind, or can you only figure out profit factor after the fact, after you exit the trade?
So if your profit factor number is… bad? low? wrong?, now you know that and it means you need to change something.
Is that how you use profit factor? As a reference point?
Thanks for your reply. Adding that book to my Amazon wishlist now. 
I actually found those ratios by trying to wrap my brain around Profit Factor and other metrics I found playing with the Strategy Tester in TradingView…
So…
Thanks again for your help! 
PF is just a statistical metric. It’s total profits divided by total losses over some collective number of trades. That’s all.
The trade, I suppose “comes first” in the sense that without a sample of trades, there are no figures from which to calculate the PF (or any other metric).
If it’s less than 1.0 you’re losing money (but you’d know that from your account balance, I hope).
This will help you -
As a retail CFD trader, your “trades” are not in a market. They’re bets against a counterparty on the price-movements of the counterparty’s own “products”. Don’t complicate it. 
As I mentioned above, just read “Profitability & Systematic Trading” by Mike Harris. That’s all you need. But you really do need that.
DON’T try to substitute online information for what’s in that book, because as a recent-ish trader/learner, you can’t possibly distinguish between information and misinformation, and there’s overwhelmingly more misinformation (and “agreement” about it!!) online than there’s information.
I suggest that a long established, accredited, respected, peer-reviewed, recognized textbook that has stood the test of time against a background of market changes, puts the odds strongly in your favor, while online “information” stacks the deck strongly against you.
Trading’s hard enough without trying to learn from questionable sources!! 
Correct, of course, but let me tell you, as a psychologist, that no matter how many times you say it, whether you re-word it completely or simply re-state it in the same words, most people are going to ignore it most of the time: it’s more comfortable, more convivial and more social to try to learn online, and most people prefer it. That’s why the overall success-rates are tiny.
Never mind that they (obviously, through absolutely no fault of their own) can’t possibly distinguish between information and misinformation. Never mind that 90% of what they read is misinformation. Never mind that 90% of people fail, through depending on it. People don’t want to step outside their comfort zones. That’s why the overall success-rates are tiny.
People want to look in forums. Never mind that hardly anyone posting in forums about forex trading is making a living from forex trading. That’s why the overall success-rates are tiny.
People want to look at Youtube. Never mind that nobody who can trade consistently profitably would be spending their time posting videos on Youtube. That’s why the overall success-rates are tiny.
People don’t want to have to read textbooks. To become successful in a field in which 90% of aspirants fail to become successful, you need to be willing to do different things that 90% of people aren’t willing to do. That’s why the overall success-rates are tiny.
I’ll stop now, because I’d hate anyone to imagine that I sound like Mark Douglas. 
I once met a consistently profitable trader who have been trading for a living for over 25 years and does not have an idea of most fancy trading terms.
I was so disappointed because I had memorised a whole trading dictionary so I could impress him. That’s when I realized that this industry is not all about being deep and fancy, but being simple and most importantly disciplined.
I always focus on better understanding the market condition because no matter how much you stick to risk management policy, if you fail to catch the market condition, everything other things will fall apart. Once you capture the market condition accurate, just set the lot size.
The key is to adjust your position size based on the market’s risk profile. If the market is volatile and unpredictable, it’s better to reduce your trade size. On the other hand, when the market shows strong trends,you can increase your position size. This way,you
are adjusting your risk level to match the market’s volatility.
I always set a stop-loss but I look for a trade which matches my strategy and whose chart tells me where the stop-loss should be.That’s what charts do - they tell you where price will probably go next. And price can do what it probably wouldn’t do and you’d better be ready for it with a stop-loss.
“Overwhelmingly more” misinformation sounds a bit hard to believe. But I understand that its probably a bit of hyperbole.
Either way, I’m fairly confident in my ability to fact check, especially for accounting-adjacent terms. Google tries to be really stringent about money-related topics. Still, they get it wrong sometimes.
No worries. I overcompensate.
My first published version of this one is projecting between 4-6k words, with over 20 or so headings, and BY FAR the most thorough examples of anything currently online. (Also, my notes and left out sections typically double or triple the length of my Google Doc.)
For round two, sources like…
…Are exactly what I look for. It’s in my cart, ready to buy.
So I just wanted to make sure this is the one:
A few of those reviews are kinda’ gnarly but I don’t mind the investment if you think it is worth it… despite the irony around the fact that I can’t be sure your recommendation isn’t “misinformation” either haha
@pink_hat_trader have you read this book as well by chance??
I have - quickly-ish. When I first started trading, someone I knew sent me a PDF copy of it by email (I suspect now, with hindsight, that that might have been a breach of the author’s/publisher’s copyright and it’s not something I endorse or suggest that anyone should do!).
I did find it helpful. But I admit I read it quickly because I’d previously done some statistics exams (as part of my original psychology degree) so I was probably a little more familiar with how to calculate, test and prove things than the “average reader” (if there is such a person!).
I recommend it, though, in this context.
And I’m sure the one you linked to, above, is the one that our schmaltzy friend was referring to.