Risk Management: Protecting Your Capital

Understanding Risk Management

Risk management is the cornerstone of successful trading. It’s not about avoiding losses completely, but managing them effectively.

Key Risk Management Components

• Position Sizing
• Stop-Loss Orders
• Take-Profit Levels
• Risk-Reward Ratios

Position Sizing Formulas

const positionSizing = {
  riskPercentage: 2, // Maximum risk per trade
  accountBalance: 10000,
  calculatePosition: (stopLoss) => {
    return (accountBalance * riskPercentage) / stopLoss;
  }
};

Risk Management Rules

1. Never risk more than 2% per trade
2. Always use stop-loss orders
3. Maintain proper position sizing
4. Keep a trading journal

Psychology of Risk

“The first rule of trading is don’t lose money. The second rule is don’t forget rule number one.” - Warren Buffett

Daily Risk Management Checklist

• Review open positions
• Check exposure levels
• Monitor market volatility
• Adjust stop-losses as needed

Conclusion

Effective risk management is what separates successful traders from those who fail. Make it your top priority.