Risk Control

Risk control stands as the core of any trading system, and the primary objective for every trader or investor is to safeguard their trading capital. The focus should always be on capital preservation before aiming for substantial gains. In the trading world, losses are part of the game, which is why each trade should be rigorously capped with a predefined potential loss to manage positions effectively. A stop order emerges as the paramount rule of position management.

The extent of risk per trade can fluctuate from 0.5% to 2%, contingent on factors like the trading system, personal ambitions, chosen timeframes, and goals. It is essential to select a risk level for each transaction that aligns with the probabilistic forecast of your trading model. For example, counter-trend trades carry higher risks compared to scenarios where trading is synchronized across timeframes and employs a high-probability model.

One of the most common mistakes made by novice traders is gauging profit or loss in fiat terms. Instead, it's prudent to view your trading capital as the full 100% and perceive profit and loss as percentages, regardless of their monetary value.

To maintain effective risk control and manage the entire trading system, maintaining detailed statistics and a trading log is crucial. Recording your transactions in a format that suits you best and meticulously analyzing your market actions allows for progress and the identification of errors in your trading strategy. The temptation to aim for higher profits than your trading system suggests should be avoided, as this can lead to excessive risks and should not undermine the value of low-risk transactions in growing your deposit.

When it comes to risk management, controlling your position size is pivotal in safeguarding your capital. It's essential to use a stop order for every trade. The cornerstone for steady growth in a trading account is the risk-to-reward ratio (risk:reward). This ratio specifically outlines how many profitable trades are needed to offset a single unsuccessful trade.



The table above clearly illustrates the probability of depleting your deposit in relation to the risk-reward ratio and the trade win rate. It becomes evident that even with a 40% win rate and a Risk: Reward ratio of 1:4, the likelihood of depleting your account over the long term is merely 5%. If the Risk: Reward ratio is maintained at 1:4 with a win rate of at least 50%, the possibility of liquidation becomes nearly implausible.

It's important to remember that the same trading setup can be approached in various ways. Employing entry refinement techniques on lower timeframes enables a significant reduction in the stop order area, thereby increasing the Risk: Reward ratio. Nevertheless, this may lead to a lower win rate. To strike a balance, use the "golden ratio" rule and select a trading model that resonates with your unique style and psychological type