Risk is the probability of losing part of the capital invested in a transaction, and risk management, accordingly, is the ability to determine this probability and control financial losses due to unsuccessful transactions.
Risk management is one of the key skills of a trader and the stability of income and the share of losses from unpredictable price fluctuations depend on it.
Three pillars on which risk management stands:
Limit risk transactions.
The risk amount of a trade is the difference between the purchase price (entry position) and the stop loss level.
It is recommended that the risk of one transaction does not exceed 1.5% -2% of the total capital.
Capital risk limitation.
The general rule is that the total risk of all transactions should not exceed 20-25% of capital.
This means that if you close all orders at a loss, you should be left with at least 75% of your initial capital.
Determining the profitability of a transaction.
To compensate for possible losses and generate income, the ratio between income and risk must be 3:1 or at least 2:1.
The income amount is the difference between the entry position and the profit taking level (TakeProfit).
🗣️ Compliance with these principles will allow you to avoid large losses of capital and save most of it, which increases the chances of successful recovery in case of failures
