Calculate your optimal position size based on risk tolerance, stop loss distance, and leverage. Never risk more than you can afford to lose. Professional traders typically risk 1-2% of their account per trade.
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Professional risk management protocol: Maximum 1-2% account risk per position. Always define exit parameters before trade execution. Capital preservation is paramount.
Position sizing is the most critical aspect of risk management in trading. It determines how many units of an asset you should buy or sell based on your risk tolerance and the distance to your stop loss.
Position Size = Risk Amount ÷ (Risk Per Unit × Leverage)Where Risk Per Unit is the absolute difference between your entry price and stop loss price.
Let's say you have a $10,000 account and want to risk 1% ($100) on a trade:
Even with a 50% win rate, proper position sizing can make you profitable. The key is to never risk more than a small percentage of your account on any single trade. This ensures that a string of losses won't wipe out your account.
Most professional traders follow the 1% rule: never risk more than 1% of your total account on a single trade. Some aggressive traders may risk up to 2%, but anything beyond that significantly increases the risk of ruin.