Question 1

Why is risk management more important than finding good trades?

Accepted Answer

Because no strategy wins 100% of the time. A trader who risks 2% per trade can survive 10 consecutive losses and still have 82% of their account. A trader who risks 20% per trade is wiped out after 5 losses. Risk management determines whether you survive long enough for your edge to play out.

Question 2

What is the 1% rule in trading?

Accepted Answer

The 1% rule means never risking more than 1% of your total account on a single trade. On a $25,000 account, that's $250 max risk per trade. This limits drawdowns during losing streaks and prevents emotional decision-making. Many professional traders use 0.5-2% risk per trade.

Question 3

How do I create a risk management plan?

Accepted Answer

Start with three rules: (1) define your max risk per trade (1-2% of account), (2) always set a stop-loss before entering, and (3) never move your stop-loss further away from entry. Then track your results to see if your actual risk matches your planned risk.

What Is Risk Management? The Foundation of Profitable Trading

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