A low-risk set up does NOT mean a Low chance of the set up failing
Here is why they still call it low-risk.
Does a Low-Risk Setup Mean There Is a Very Low Chance the Trade Will Fail?
When you’re starting out in trading, the phrase "low-risk setup" often sounds like a golden ticket. A low-risk trade, right? It’s bound to succeed, right? Well, not exactly. Here’s the truth: low risk doesn’t necessarily mean low chance of failure. It's a common mistake many beginners make — thinking that a "low-risk setup" guarantees success.
Let’s clarify what "low-risk" actually means.
What Does "Low-Risk Setup" Really Mean?
A low-risk setup means that the amount you will lose if the trade fails will be LOW. It doesn’t guarantee success, but it does minimize your potential loss. In trading, this is usually achieved by placing a tight stop-loss. A low-risk setup provides you with a pivot that is very close to the buy trigger point.
For example:
You enter a stock at ₹100 and set a stop-loss at ₹97.7.
If the stock hits ₹97.7, you’re out with a 2.3% loss.
That’s a low-risk setup. Why? Because if the stock moves against you, the most you can lose is that small amount — in this case, 2.3%.
(How low is low? This is a separate discussion. But in general, the higher your trading timeframe, the low-risk can be a higher amount. Eg: 5% SL is a low risk in a weekly setup, but it might not be in a daily setup. Similarly, 2.5% is a low risk for a daily setup but might not be for an intraday setup. You will understand when you see the examples later in the article)
So, Does It Mean Your Trade Won’t Fail?
Not at all. A low-risk setup is about protecting your downside, not ensuring the success of the trade (and therefore a higher win percentage). The chance of failure, i.e. the probability of a trade not working in your favor, is still there. A tight stop-loss just means that your losses are controlled (small) if it does fail.
So, the question isn’t “Will it fail?”, but “How much do I lose if it does?”
Most successful traders not only look for a good setup but look for a predefined low-risk point. On this note, read these X posts below which have initiated a good amount of discussion right now.
By Nick Schmidt: https://x.com/NickSchmidt_/status/1870500375545184668
Follow up by Marios Stamatoudis: https://x.com/stamatoudism/status/1870517101670310219
I have to be clear that my article today is not about "what makes a set up low-risk"? But more about the misconception that a low-risk set up has a higher chances of success.
What makes a setup low risk is their intersection with a core market tendency. Something that the X posts above also touch upon.Some examples of low-risk setups during the week:
These were all shared live and posted on the WhatsApp Academy group for educational purposes. Some were traded by me and some were merely shared as examples. Note that the low-risk setups were from multiple timeframes as well. (Read the fine print on the screenshot for risk explanation).
KFintech (daily, 25min)
With a sub 2% risk, it gave a move of >12%. That’s a 6R trade.
TI (daily):
This one triggered soon after but failed right after the entry.
Siysil (25 min):
A picture-perfect flag setup with a sub 2% risk. It went on to be a big winner.
OLA electric (daily/25 min):
This eventually failed. But not before giving opportunities to derisk.
Bajaj Healthcare (3 min):
Although the low-risk entry is on an intraday 3-min pivot, the setup is a valid low-risk entry on Daily and Weekly as well (Big base Breakout https://x.com/SakatasHomma/status/1869274669565817074).
The idea was to look for a Pullback confirmation (PBC) after this base breakout.
Why are Low-Risk Setups worth it?
The real power of low-risk setups? Asymmetric returns.
This is where the magic happens. The concept of asymmetric returns is simple — small risk, big reward.
Imagine it like this:
You risk ₹1 (a small amount), but the potential reward is ₹5, ₹10, or even ₹20.
The idea is to risk a small amount of capital for a much larger return. Even if you lose 2 or 3 trades in a row, one good win can wipe out those losses and still leave you with profit. It’s like having a small safety net under you.
If you’re trading, you’ll face losses. But with asymmetric returns, even with those losses, the big wins will help your account grow over time.
The Risk of Ruin and How Asymmetric Returns Help
One of the biggest risks in trading is the risk of ruin — the possibility that your account could be wiped out if you take too many losses in a row. This is a real risk, especially with beginners.
But here’s the thing — asymmetric returns can significantly reduce this risk.
Why? Because if you’re only risking a small amount of capital on each trade, your account is less likely to get wiped out, even if you hit a losing streak.
Conclusion: Low Risk = Small Losses, Not a Low Chance of Failure
To sum up: A low-risk setup doesn’t mean the chance of failure is low. It simply means that if things go wrong, you’ll lose a small amount.
The real power of a low-risk setup lies in asymmetric returns — the chance to make far more than you risk. Even though a trade might fail (which it will), the risk is small enough that your big wins can compensate for the losses over time.
By focusing on these low-risk setups, you’ll protect your capital while still leaving plenty of room for those larger gains that will help you grow your account.
In the long run, this strategy allows you to keep your capital safe while still taking advantage of big opportunities. So, next time you hear “low-risk setup,” remember: it’s about protecting your downside, not ensuring the success of that particular trade — but it’s a key piece of the puzzle for consistent profitability.
And lastly, remember that low risk isn’t a fixed number. The higher the trading timeframe, the low-risk will be a higher number. Because, what matter is the reward compared to the risk and not just the risk alone.
Something, that wasn’t discussed in the article.
What makes a setup low-risk?
Perhaps for another article.
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That’s all for today. But remember,
The low-risk perfect entry is often the easiest thing in Trading.
What’s difficult?
Waiting for the low-risk setup.
Not chasing an extended stock.
Sizing up well.
Putting a valid Stoploss.
Giving the trade time to work.
Doing nothing to a trade that is working.
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