What is Risk Management in Trading?

Risk management in trading means using strategies to limit potential losses and protect your capital. It’s all about trading smart, not just chasing profits.

Key Concepts:

Stop-Loss Orders

A pre-set level where your trade will automatically close to avoid bigger losses.

Example: If you buy a stock at $100, you set a stop-loss at $95. If it drops to $95, the system sells it to protect you from losing more.

Risk/Reward Ratio

Measures how much you're willing to lose vs. how much you expect to gain.

Example: A 1:3 ratio means you're risking $1 to potentially earn $3.

Position Sizing

Decide how much money to put into each trade based on your total account balance.

Never risk all your money on one trade!

Diversification

Spread your investments across different assets (stocks, forex, crypto, etc.) to reduce risk.

Emotional Discipline

Don’t let fear or greed control your decisions. Stick to your plan, even if emotions are high.

Why It Matters:

Good risk management keeps you in the game longer.

Even if you lose some trades, smart risk management can help you stay profitable over time.$ETH