Risk management is the most important—yet most overlooked—aspect of successful trading. Professional traders don't focus on making money; they focus on NOT LOSING money. Master these principles, and profitability will follow naturally.
The Golden Rules of Risk Management
Never Risk More Than 1-2% Per Trade
Protect your capital by limiting exposure on any single trade. This ensures you can survive losing streaks.
Always Use Stop Losses
Set your stop loss BEFORE entering the trade. Never move it further away—only tighten it.
Position Sizing is Critical
Calculate position size based on account size and stop loss distance. Larger stop = smaller position.
Diversify Across Assets
Don't put all capital in one market. Spread risk across uncorrelated assets.
Position Sizing Calculator
Formula: Position Size = (Account Size × Risk %) ÷ (Entry Price - Stop Loss Price)
Example:
Account: $10,000 | Risk: 2% ($200) | Entry: $50 | Stop: $48 | Distance: $2
Position Size = $200 ÷ $2 = 100 shares