Another key factor in controlling risk is to manage the money you’re allocating to any given position. Many successful traders stick to the 1% rule, which involves only ever risking 1% of your total funds on any given trade. If, for example, you have £5,000 in your account, your total risk on any position would be £50.
It’s also worth evaluating your risk-reward ratio, which dictates how much potential profit you want to target compared to your total risk. The higher your ratio, the fewer successful trades you’ll need to be profitable. However, you’ll also find fewer opportunities, so finding a good balance is key.
Many traders use a risk-reward ratio of between 1-2 and 1-3.