1. Why Risk Management Matters
Every trade has risk. Proper management ensures that losses are controlled and your account survives long-term:
- Protect your capital from unexpected market moves.
- Prevent emotional trading caused by large losses.
- Ensure consistency in your trading results.
2. Determining Risk per Trade
Decide how much of your account you are willing to risk per trade:
- Common guideline: 1-2% of account balance per trade.
- Example: With $10,000 account, risk $100-$200 per trade.
- Helps survive losing streaks without wiping your account.
3. Position Sizing Calculation
Position size = Amount willing to risk ÷ Stop-loss distance (in pips) × Pip value
- Determine stop-loss based on support/resistance or volatility.
- Calculate how many lots/units to trade based on risk amount.
- Adjust position size to keep risk within your limits.
4. Risk-Reward Ratio
Every trade should have a favorable risk-reward ratio:
- Example: Risk 50 pips to target 100 pips → 1:2 ratio.
- Higher reward per risk increases overall profitability.
- Consistency in risk-reward reduces the number of losing trades needed to stay profitable.
Key Takeaways
- Never risk too much on a single trade.
- Use stop-loss and position sizing to protect your account.
- Plan risk-reward before entering any trade.