Risk management in trading is like playing a game wisely. Imagine you have a bag of marbles, and each marble represents money you're willing to risk. If you lose a round, you only lose one marble, but if you win, you might gain more. It's about deciding how many marbles you're comfortable losing in each game, so you don't run out too quickly. This way, you can keep playing and have a chance to win in the long run without risking everything at once.

Let's say you have $1000 to trade. With good risk management, a common approach is to risk only a small portion of your total capital on each trade. A rule of thumb could be risking 1-3% of your total capital per trade.

For example:

Total Capital: $1000

Risk per Trade (1-3%): $10 - $30

This means that on any single trade, you should not risk more than $10 to $30. This way, even if the trade doesn't go as planned, you won't lose a significant portion of your capital.

Let's break it down further:

If you decide to risk $10 per trade, and your trade goes against you, you'll only lose $10.

If you decide to risk $30 per trade, even in a loss, your maximum loss would be $30.

This approach helps to protect your capital and ensures that one unsuccessful trade doesn't wipe out a large portion of your account. It allows you to stay in the trading game, learn from experiences, and potentially make profitable trades over time.

Remember, it's about playing the long game and not putting all your marbles on the line at once.

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