- Never risk more than 1-2% of your total account balance on a single trade.
Calculate position size using the formula:
Position Size = (Risk per Trade) ÷ (Stop Loss in Pips × Pip Value)
- Stop Loss & Take Profit
A Stop Loss prevents excessive losses by closing a trade at a predetermined price.
A Take Profit locks in gains by closing a trade at a target price.
Use a Risk-to-Reward Ratio (RRR) of at least 1:2, meaning for every $1 risked, aim for a $2 profit.
The RRR determines if a trade is worth taking.
Example: If risking 20 pips, set a profit target of at least 40 pips (1:2 RRR).
Higher RRR helps balance win/loss ratios and increase long-term profitability.
Leverage amplifies both profits and losses. Use it wisely.
Avoid over leveraging, which can lead to rapid account depletion.
Keep free margin available to prevent margin calls.
Avoid putting all capital into one currency pair or trade idea.
Understand currency correlations (e.g., EUR/USD and GBP/USD often move together).
- Emotional Discipline & Psychology
Never revenge trade after a loss. Stick to your risk plan.
Accept that losses are part of the game and stay consistent.
Avoid overtrading; take only high-probability setups.
Develop a solid trading plan that includes risk rules.
Keep a trading journal to review mistakes and improve strategy.
Evaluate win rate vs. risk-to-reward to refine risk management.
- Risk Per Trade (Position Sizing)
- Risk-to-Reward Ratio (RRR)
- Account Leverage & Margin Management
- Diversification & Correlation Awareness
- Trading Plan & Journaling
Risk management is the backbone of long-term trading success. Even the best strategy will fail without proper risk control. Stick to the plan, stay disciplined, and let risk management be your edge in the market.