Risk management and position sizing

Risk management · Timeframe: All · Sessions: Always

The most important part of any strategy: how much you risk on each trade.

How it works

No strategy always wins, so survival depends on limiting the loss per trade. A common rule is not to risk more than 0.5-1% of the account per trade: size = (account × % risk) / distance to stop. With a 40% win rate and 1:2 trades the expected result is positive before costs; with 1:1 it is not. Keep a trading journal and set a daily loss limit.

Step-by-step rules

1. Define the risk per trade (e.g. 0.5-1% of the account).
2. Compute the size from the distance to the stop, never the other way round.
3. Minimum reward/risk of 1:1.5-1:2.
4. Daily and weekly loss limits; when reached, stop trading.
5. Account for spreads, commissions and the product's leverage.

Open in the interactive tool →

Educational content. No strategy guarantees profits and past performance does not guarantee future results.