Risk Management

Risk management is the set of rules and practices that protect your trading capital from excessive losses. It covers position sizing, stop-loss placement, risk-per-trade limits, portfolio diversification, and the psychological discipline to follow these rules even when it's tempting not to.

The core principle is simple: control what you can control. You can't control where price goes, but you can control how much you lose when you're wrong. The standard guideline is to risk no more than 1-2% of your account on any single trade. On a $10,000 account, that means your maximum loss per trade is $100-200.

Good risk management is what separates traders who last from those who blow their accounts. A strategy with a 50% win rate and a 1:2 risk-reward ratio is profitable over time — but only if you actually let the math play out by surviving enough trades. The traders who fail typically do so because one or two oversized losses wiped out weeks of gains.