Why Risk Management Matters
Even the best trading strategy will fail without proper risk management. The goal is to survive long enough to compound your wins.
Core Principles
- Only risk 1-2% per trade: Never risk more than a small fraction of your account on any single position.
- Always use stop-losses: Predetermine your exit point before entering.
- Diversify: Don't put all your capital in one asset or sector.
- Have a plan: Know your entry, target and stop before you trade.
The 1% Rule
If you risk 1% per trade and win 55% of the time with a 2:1 reward-to-risk ratio, you will be consistently profitable over the long run.