Risk Management

Risk Management Guide: Protect Capital

The Foundations of Risk Management

Protecting your capital is your number one job as a trader. Without capital, you cannot trade. Implement these core rules to protect your account:

1. The 1% Risk Rule

Never risk more than 1% of your total account equity on a single trade. If you have a $10,000 account, your maximum loss per trade should be $100.

2. Understanding Risk-to-Reward (R:R)

Always aim for trades with a favorable risk-reward ratio, such as 1:2 or higher. This means risking $1 to make $2, allowing you to be profitable even with a 40% win rate.

3. Pre-Defining Stop Losses

Always know exactly where you will exit the trade if it goes against you before you click the buy button. Never move your stop loss lower once in a trade.