Risk Management Strategies
Good risk management keeps you in the game. This guide covers practical rules for sizing trades, placing stops, and staying consistent.
Table of contents
1) Risk per trade
Start with a small fixed percentage per trade (commonly 0.5%–1%). This prevents a string of losses from wiping out your account.
2) Position sizing
Position sizing connects your stop-loss distance (in pips) to the money you are willing to lose.
A simple workflow: define your account risk in dollars → define your stop-loss in pips → compute the lot size.
3) Stop-loss placement
- Place stops where your trade idea is invalidated, not where it feels comfortable.
- Avoid moving stops further away to avoid a loss.
- Use structure (recent swing highs/lows), not random pip counts.
4) Risk-to-reward (R:R)
R:R compares what you could make vs what you could lose. Many strategies aim for 1:1 to 1:3 depending on win rate. Don’t force a take-profit if the market structure doesn’t support it.
5) Rules that prevent blowups
- Set a daily loss limit (e.g., 2R) and stop trading when hit.
- Avoid revenge trading after a loss.
- Reduce size during drawdowns; increase only after consistency returns.
- Keep a trading journal and review weekly.