What Is Risk Management?

Risk management is how you control potential losses on every trade. Good traders don’t focus on how much they can make — they focus on how much they can lose.

Without risk management, even a great strategy will eventually fail.

The 1–2% Rule

A common guideline is to risk no more than 1–2% of your account on a single trade.

• $10,000 account → max risk: $100–$200 per trade
• Protects you from large drawdowns
• Keeps emotions under control

Use Stop-Loss Orders

A stop-loss automatically exits a trade when price hits a defined level.

• Prevents catastrophic losses
• Removes emotional decision-making
• Defines risk before entering a trade

Position Sizing Matters

Position size determines how many shares you buy based on your risk level.

Larger positions increase emotional pressure and potential losses. Smaller, consistent position sizing keeps you disciplined.

Risk Comes Before Profit

The goal of trading is survival first, growth second. When you control losses, profits have room to compound over time.