Protect Your Capital and Trade Smart - The Psychology of Successful Trading
The most critical aspect of risk management is controlling how much money you risk on each trade.
Never risk more than 1-2% of your total account balance on any single trade.
Example:
$10,000 account = $100-200 maximum risk per trade
Your position size should be calculated based on your stop loss distance.
Formula:
Position Size = Risk Amount ÷ Stop Loss Distance
Automatically close position at predetermined loss level
Automatically close position at predetermined profit level
Aim for at least 1:2 ratio (risk $1 to make $2)
Move stop loss as trade moves in your favor
Can cause you to exit trades too early or avoid good opportunities
Solution: Stick to your trading plan
Can cause you to hold losing trades or overtrade
Solution: Set profit targets and stick to them
Trying to recover losses with bigger, riskier trades
Solution: Take a break after losses
Record every trade with reasons for entry/exit
Benefit: Learn from mistakes and successes
Written rules for entry, exit, and risk management
Benefit: Reduces emotional decision making
Consistent preparation and analysis schedule
Benefit: Builds professional habits
Result: Very safe, slow growth
Result: Balanced risk and reward
Unpredictable market movements
Emotional decision making
Issues with trading platform
Poor trading methodology
Risk a fixed percentage of account per trade
Formula:
Position Size = (Account × Risk %) ÷ Stop Loss in Pips
Example: $10,000 × 0.02 ÷ 50 pips = 0.4 lots
Optimal position size based on win rate and risk-reward
Formula:
f = (bp - q) ÷ b
Where: f=fraction, b=odds, p=win rate, q=loss rate
Adjust position size based on market volatility
Method:
Reduce position size by 50% during high volatility periods
Use ATR (Average True Range) to measure volatility
Expected profit per trade
Formula:
(Win Rate × Avg Win) - (Loss Rate × Avg Loss)
Positive expectancy = profitable strategy
Seeking information that confirms your beliefs
Solution: Consider opposing viewpoints
Fixing on initial price levels or information
Solution: Use multiple analysis methods
Fear of losses more than desire for gains
Solution: Focus on process over outcome
Overestimating trading abilities
Solution: Keep detailed trading journal
4-7-8 breathing technique for stress management
Daily practice to improve emotional regulation
Record emotions and decisions for each trade
Share trading journey with trusted mentor
Avoid overexposure to correlated pairs
Set maximum acceptable account drawdown
Limit exposure during high-impact news events
Adjust strategy during volatile markets
Adapt to range-bound markets
Optimize for directional moves
Target minimum win rate for profitability
Minimum risk-reward ratio per trade
Maximum acceptable account drawdown
Minimum trades before evaluating performance
Protect your capital with proper risk management and develop the mindset of a successful trader. Remember: it's better to preserve capital than to chase profits.
Trade with brokers offering negative balance protection