Risk Management
The difference between successful and failed traders isn't strategy - it's risk management
Why Risk Management is #1
You can lose 10 trades in a row even with a 60% win rate strategy. Without proper risk management, this streak will destroy your account.
Golden Rules
The 1-2% Rule
Never risk more than 1-2% of your capital on a single trade. This protects you from losing streaks.
Risk-Reward Ratio
Aim for 1:2 ratio or better. If risking $50, target $100+ profit.
Always Use Stop Loss
Never open a trade without a predetermined stop loss. Set it before entry and don't move it.
Position Size Calculator
Calculate the right size for your trade
Drawdown Recovery Table
The deeper the drawdown, the exponentially harder it is to recover
Drawdown | Gain Needed to Recover | Severity |
|---|---|---|
| -5% | +5.3% | Recoverable |
| -10% | +11.1% | Recoverable |
| -15% | +17.6% | Recoverable |
| -20% | +25.0% | Recoverable |
| -25% | +33.3% | Difficult |
| -30% | +42.9% | Difficult |
| -40% | +66.7% | Dangerous |
| -50% | +100.0% | Dangerous |
| -60% | +150.0% | Catastrophic |
| -75% | +300.0% | Catastrophic |
| -90% | +900.0% | Catastrophic |
Key Takeaway: A 50% drawdown requires a 100% gain just to break even. This is why the 1-2% rule is crucial - it ensures you never reach catastrophic drawdown levels.
Position Sizing Methods
Fixed Percentage
Same percentage (1-2%) every trade
Best for beginnersVariable by Confidence
0.5% for weak setups, 2% for strong
For experienced tradersKelly Criterion
Mathematical size based on win rate & R:R
For advanced tradersMonte Carlo Simulation
See how risk size affects your account survival
Adjust parameters and click "Run Simulation" to see results
Drawdown Management
Real Trade Example
Step-by-step with proper risk management
Account Balance
$10,000Starting capital before the trade.
Fatal Mistakes
- ✗Trading without stop loss
- ✗Moving stop loss further away
- ✗Over-risking to "recover" losses
- ✗Not diversifying trades
- ✗Trading too large size
- ✗Ignoring high-impact news
Success Tips
- ✓Calculate position size before each trade
- ✓Don't open multiple correlated trades
- ✓Reduce size during high volatility
- ✓Set daily/weekly max loss limit
- ✓Log every trade and review it
Risk Management Quiz
Question 1 of 5
What is the recommended maximum risk per trade for beginners?
Risk Management Checklist
Review before every trade
- Calculate position size before entry
- Set stop loss based on analysis
- Confirm 1:2 risk/reward ratio
- Check for high-impact news
- Review daily max loss limit
- Avoid emotional trades
Trading Calculators
Use these tools to apply what you learned