The Foundation of Profitable Trading
Even with 80% win rate, poor risk management will destroy your account. This guide teaches professional risk management techniques used by institutional traders.
⚡ The Golden Rule
Never risk more than 1-2% of your account on a single trade
This single rule will ensure you survive losing streaks and remain profitable long-term.
Position Sizing Calculator
Calculate Your Position Size
Account Balance:
$10,000
Risk per Trade:
1% = $100
Stop Loss:
10 pips (Gold)
Position Size:
0.10 lots
Formula: Position Size = (Account × Risk%) / (Stop Loss in pips × Pip Value)
Risk Management Rules
1. Maximum Risk Per Trade
| Account Size |
Conservative (1%) |
Moderate (1.5%) |
Aggressive (2%) |
| $1,000 |
$10 |
$15 |
$20 |
| $5,000 |
$50 |
$75 |
$100 |
| $10,000 |
$100 |
$150 |
$200 |
| $50,000 |
$500 |
$750 |
$1,000 |
2. Daily/Weekly Loss Limits
- Daily Stop Loss: 3-5% of account (stop trading for the day)
- Weekly Stop Loss: 8-10% of account (take a break, review strategy)
- Monthly Drawdown: Never exceed 15-20% loss
3. Risk-Reward Ratios
Your take profit should always be larger than your stop loss:
| Risk:Reward |
Required Win Rate |
Recommended For |
| 1:1 |
55-60% |
Not recommended |
| 1:1.5 |
45-50% |
Scalping (XAUUSD M5) |
| 1:2 |
40-45% |
Day trading |
| 1:3 |
30-35% |
Swing trading (recommended) |
Advanced Risk Techniques
Scaling Out (Taking Partial Profits)
Don't close entire position at once - scale out to maximize profits:
- TP1 (50% position): Close at 1:1.5 risk/reward
- Move SL to breakeven: Now trading risk-free
- TP2 (30% position): Close at 1:2.5 risk/reward
- TP3 (20% position): Let it run with trailing stop
Trailing Stop Loss
Lock in profits as price moves in your favor:
- Activate trailing stop after +50% of TP1 is reached
- Set trailing distance: 50% of your initial stop loss
- Example: 10 pip SL → 5 pip trailing stop
Correlation Risk
Avoid trading highly correlated pairs simultaneously:
- High Correlation: EUR/USD + GBP/USD (move together)
- Risk: If you're long both, you're essentially doubling your risk
- Solution: Trade only one correlated pair at a time
Stop Loss Placement
Technical Stop Loss
- For BUY: Below recent swing low or support level
- For SELL: Above recent swing high or resistance level
- Minimum distance: 8-10 pips for Gold, 15-20 pips for major pairs
ATR-Based Stop Loss
Use Average True Range to adjust for volatility:
- Stop Loss = Entry ± (1.5 × ATR)
- Works well in volatile markets
- Automatically adjusts to market conditions
Psychology of Risk Management
Common Mistakes to Avoid
- Revenge Trading: After a loss, increasing position size to "win it back" → NEVER DO THIS
- Moving Stop Loss: Widening SL when trade goes against you → Stick to your plan
- Overtrading: Taking too many trades to compensate for losses → Quality over quantity
- Ignoring Correlation: Multiple positions on correlated instruments → Diversify properly
The 2% Rule in Action
Scenario: $10,000 account with 2% risk per trade
- Risk per trade: $200
- 10 consecutive losses = $2,000 loss (20% drawdown)
- Account balance: $8,000
- To recover: Need +25% gain (harder than -20% loss!)
With 1% risk:
- 10 consecutive losses = $1,000 loss (10% drawdown)
- Account balance: $9,000
- To recover: Need only +11% gain
✓ Professional Trader Checklist
- ✓ Position size calculated before every trade
- ✓ Stop loss placed immediately after entry
- ✓ Risk never exceeds 2% per trade
- ✓ Daily loss limit set and respected
- ✓ Take profit targets defined before entry
- ✓ Trading journal updated after each trade