Capital Preservation First

In trading, you can lose a hundred times and still survive with capital. But blow your account once, and it's game over. Protecting capital is always the priority.

1. The 2% Rule

Never risk more than 2% of your total account balance on a single trade. This is the golden rule of risk management.

Example:

• •Account balance: $10,000
• •Maximum risk per trade: $200 (2%)
• •If stop-loss is 50 pips, position size = $4 per pip

2. Always Use Stop-Loss

Every trade must have a predefined stop-loss. Set it when you enter, and execute it without hesitation when hit.

3. Minimum 1:2 Risk-Reward Ratio

Your potential profit should be at least twice your potential loss. Don't enter trades with poor risk-reward ratios.

Example:

• •Entry: 1.1000
• •Stop-loss: 1.0950 (50 pips risk)
• •Take-profit: 1.1100 (100 pips reward) = 1:2 ratio

4. Diversify Your Risk

Don't put all your eggs in one basket. Spread risk across different currency pairs and avoid overexposure.

Guidelines:

• •Maximum 30% of capital in a single currency pair
• •Maximum 50% in correlated pairs (EUR/USD and GBP/USD)
• •Avoid multiple positions in the same direction on correlated pairs

5. Control Your Emotions

Never trade based on emotions. After a loss, don't rush to recover. After a win, don't get overconfident.

Fixed Percentage Method

Risk a fixed percentage (1-2%) of your account on each trade. Position size adjusts automatically as your account grows or shrinks.

Formula:

Position Size = (Account Balance × Risk %) ÷ (Stop Loss in pips × Pip Value)

Fixed Dollar Amount

Risk the same dollar amount on every trade regardless of account size. Simple but doesn't account for account growth.

Volatility-Based Sizing

Adjust position size based on pair volatility using ATR (Average True Range). Higher volatility = smaller position size.

Technical Stop-Loss

Place stops below support (for longs) or above resistance (for shorts). Based on market structure, not arbitrary numbers.

Percentage-Based Stop

Fixed pip distance from entry (e.g., always 50 pips). Simple but doesn't consider market conditions.

ATR-Based Stop

Set stop-loss at a multiple of ATR (e.g., 2×ATR). Adapts to current market volatility automatically.

Time-Based Stop

Exit if the trade hasn't moved in your favor after a set time period. Prevents capital from being tied up.

1. Trailing Stop

Once your position is profitable, gradually move your stop-loss toward profit, locking in gains while giving price room to run.

Example:

• •Buy EUR/USD at 1.1000, initial stop at 1.0950 (50 pips)
• •Price rises to 1.1050, move stop to 1.1000 (breakeven)
• •Price rises to 1.1100, move stop to 1.1050 (50 pips profit locked)

2. Scaling In

Don't enter full position at once. Scale in 2-3 times to average better entry prices and improve win rate.

Strategy:

• •First entry: 50% position, testing the market
• •Second entry: 30% position, confirming the trend
• •Third entry: 20% position, trend fully established

3. Scaling Out

When targets are hit, don't exit entirely at once. Take partial profits to protect gains while keeping exposure to bigger moves.

Strategy:

• •At 1:1 risk-reward: close 50%, move stop to breakeven
• •At 1:2 risk-reward: close 30%, use trailing stop
• •Remaining 20%: let profits run

4. Daily Loss Limit

Set a maximum daily loss limit (e.g., 5% of account). Once hit, stop trading immediately for the day.

Example:

With a $10,000 account, stop trading when you've lost $500 for the day. Come back tomorrow. This prevents emotional meltdown and consecutive losses.