Intro
Risk management is one of the most important parts of trading.
Without it:
even a good strategy will fail
A simple rule most traders use is:
risk 1–2% per trade
What 1–2% Risk Means
This means:
If your trade hits stop-loss, you only lose 1–2% of your account.
Example:
- Account = £500
- 1% risk = £5
- 2% risk = £10
No matter how confident the trade looks:
your risk stays controlled
Why This Matters
- Protects your account
- Prevents large drawdowns
- Allows recovery after losses
Even with multiple losing trades:
your account survives
How to Calculate Position Size
Step 1: Define Risk
Decide how much you are willing to lose.
Example:
- £500 account → 1% = £5
Step 2: Define Stop-Loss
Find the distance between entry and stop.
Example:
- Entry = 100
- Stop = 95
- Distance = 5
Step 3: Calculate Size
Position Size = Risk ÷ Stop Distance
Example:
- £5 ÷ 5 = 1 unit
Using Leverage
Leverage does not change your risk calculation.
It only changes:
- exposure
- position size
Important:
Always calculate risk first—not position size
Example Trade
Account: £500
- Entry: 118.50
- Stop: 116.50
- Distance: 2
Calculation:
- Risk = £5
- Position size = £5 ÷ 2 = 2.5 units
- Rounded = 2 units
Why Stick to 1–2%
Account Protection
Even after multiple losses:
you still have capital left
Emotional Control
Knowing your risk helps you:
- stay calm
- avoid panic decisions
Consistency
Small, controlled losses:
allow long-term growth
Common Mistakes
- Risking too much per trade
- Not using stop-loss
- Overleveraging
- Changing risk based on emotions
Key Rules
- Risk stays fixed every trade
- Stop-loss is always defined
- Position size is calculated—not guessed
Final Thoughts
Trading is not about one trade.
It’s about surviving long enough to stay consistent.
Bottom Line
Protect your capital first.
Profits come second.
