Risk management — the only thing in trading you fully control
The 1-2% rule, max drawdown, position correlation, position sizing. A complete guide to risk management for traders at any level.
The market will do what it wants. You don't control price. You don't control direction. You don't control volatility. You don't control the news that flips your setup upside down.
The only thing you control — is how much you risk.
The 1-2% rule — math that saves accounts
Never risk more than 1-2% of your capital on a single trade. With 2% risk per trade, even 10 consecutive losses leaves you with 82% of your capital. You have time to recover, reflect, improve and come back. With 10% risk? After 5 consecutive losses, you're left with 59% and need a 70% gain to break even.
Max drawdown — when you stop playing
Set a daily and weekly loss limit — and respect it. Example: max 3% daily loss, max 6% weekly. When you hit the daily limit — close the platform. For the whole day. No negotiations, no exceptions.
How to calculate position size
The correct approach: first set the stop loss based on technical analysis, then calculate the lot size so the loss doesn't exceed your risk limit.
Formula: Lot = (Capital × % risk) / (Stop loss in pips × pip value)
Example: account $10,000, risk 1% = $100, SL = 50 pips, 1 pip = $10/lot → lot = 100 / (50 × 10) = 0.2 lots.
Position correlation — the hidden double risk
You're long EUR/USD and long GBP/USD? Both pairs are highly correlated with the dollar. You have de facto double exposure. If the dollar strengthens — both positions lose. Watch correlations. With two correlated positions, halve each or remove one.
Risk management is the only thing you control
A trader who masters risk management can survive a bad strategy and fix it. A trader who ignores it — will fail even with a good strategy.
