Examples of Risk Management Strategies

1 Percent Strategy

This strategy is first suggested to new traders learning the ropes due to the very low risk associated with each trade.

By wagering only 1% of an account at any given time, it would take 100 losing trades in a row to wipe out an account entirely.

Trade sizing may be small, and therefore profits are also meager, but this slow and steady approach has been shown to generate consistent profits for even new traders effectively.

Risk:Reward

Using the same methodology, traders can create a risk to reward ratio that is more suitable for their risk appetite. 

Traders can raise the limit risked per trade to gear trades for higher profit margins, or shoot for a higher level of reward, taking fewer overall trades.

A trade risking $100 at 1% of an account would need to generate $300 in reward with a 1:3 risk to reward ratio. If this is the trader’s desired level of risk, then no trades should be taken unless a $300 profit is possible.

However, a 1:3 risk ratio at 10% of the same sized account, would risk $1000 and need to generate $3000 to be taken.

Such a substantial account risk for new traders, however, is not recommended.

Remember: Never invest or take a position size larger than you can afford to lose comfortably.

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