Risk Management
Risk Management 🛡️
Protecting your capital is the most important part of trading. Follow these principles to trade responsibly.
The Golden Rules
- Never risk more than you can afford to lose
- Use proper position sizing
- Diversify across markets
- Keep emotions in check
Position Sizing Formula
Calculate the right amount to invest:
Risk per trade = Account × Risk %
Position size = Risk per trade / (Premium per share)
Example: With a $1,000 account and 2% risk per trade:
- Max risk = $20
- If premium is $0.50 per share, max shares = 40
Risk Per Trade Guidelines
| Experience Level | Max Risk per Trade |
|---|---|
| Beginner | 1% |
| Intermediate | 2% |
| Advanced | 3-5% |
Common Mistakes
- Overtrading — Taking too many trades reduces focus
- Revenge trading — Trying to recover losses quickly
- Ignoring the timer — Running out of time on a position
- All-in on one market — No diversification
Building a Routine
- Review the market before trading
- Set a daily loss limit
- Take breaks between trades
- Keep a trading journal
- Review your performance weekly