Risk management is the protective shield for your capital and the most important element for continuity in the markets. Its essence is to protect capital from catastrophic losses.
Its main tools:
1. Stop-Loss: An automatic order that closes a trade at a predetermined loss level, to protect yourself from market crashes.
2. Position Sizing: Don't put all your eggs in one basket. Invest only a small percentage of your capital in each trade (as a rule, less than 2%).
3. Risk/Reward Ratio: Aim to achieve higher profits than potential losses. Look for trades with a 1:3 ratio or better.
The goal is not to achieve enormous profits quickly, but to stay in the game day after day. Trading without risk management is gambling, not investing.