Position Sizing: It involves determining the appropriate volume of a trade based on the specific risk one is willing to take per trade (typically between 1-2% of total capital). This ensures that no individual trade can cause a significant drawdown, reducing emotional pressure and allowing the trader to think clearly.
Stop-Loss Orders: An automatic stop-loss closes a trade if the price reaches a predetermined level, limiting potential losses. Its placement should be based on logical levels that invalidate the candle pattern or strategy, not on hope. Implementing strict stop-losses helps avoid the trap of loss aversion, as it forces acceptance that losses are an inevitable part of trading.
Take-Profit Orders: A take-profit closes a trade when the price reaches a predetermined profit level. This helps secure profits and prevents greed from leading to holding a position for too long, risking a reversal.
