1. Understanding Risk
Risk is the potential loss in a trade. Key concepts:
- Account Risk: Decide what % of your total capital you are willing to risk per trade (commonly 1–2%).
- Trade Risk: Difference between entry price and stop-loss level determines risk per trade.
- Risk/Reward Ratio: Compare potential profit vs. risk. Aim for at least 2:1 or higher.
2. Position Sizing
How much to buy/sell per
- Calculate risk per trade: Risk % × Account Size.
- Determine position size: Risk per Trade ÷ (Entry Price – Stop-Loss).
- Adjust for leverage if using margin or futures trading.
3. Stop-Loss & Take-Profit
Stops and targets help limit losses and lock in profits:
- Always set stop-loss based on chart structure or volatility.
- Take-profit levels can be set at resistance/support or key Fibonacci levels.
- Trailing stops allow capturing extended moves while protecting gains.
4. Risk Management Tips
- Never risk more than you can afford to lose.
- Trade with a plan, not emotions.
- Diversify positions to reduce exposure.
- Review past trades to learn from mistakes and improve risk handling.
Key Takeaways
- Effective risk management prevents account blowouts.
- Position sizing ensures trades align with your risk tolerance.
- Stops, targets, and proper planning increase your probability of success.