Risk management is the most important skill in trading. It determines how long you survive and whether you achieve consistent profitability.
The 1-2% Rule
Never risk more than 1-2% of your account on a single trade.
$10,000 account:
- 1% risk = $100 max loss per trade
- 2% risk = $200 max loss per trade
Position Sizing Formula
Lot Size = (Account × Risk%) / (Stop Loss Pips × Pip Value)
Example:
- Account: $10,000
- Risk: 2% = $200
- Stop loss: 40 pips
- Pip value: $10
- Lot size = $200 / (40 × $10) = 0.5 lots
Essential Rules
- ✅ Always use stop losses
- ✅ Risk max 1-2% per trade
- ✅ Maintain 1:2+ risk-reward ratio
- ✅ Don’t over-leverage
- ✅ Diversify across pairs/timeframes
- ✅ Keep a trading journal
- ✅ Never revenge trade
Risk-Reward Ratio
| Ratio | Win Rate Needed to Break Even |
|---|---|
| 1:1 | 50% |
| 1:2 | 33% |
| 1:3 | 25% |
With 1:2 R/R, you only need to win 33% of trades to break even!