Risk management is about understanding how much can be lost before any decision is made.
Example: on a $10,000 account, risking 1% means a potential loss of $100.
Losses require larger percentage gains to recover — a 20% loss needs a 25% gain to return to break-even. That is why capital preservation matters.
Key definitions
- Drawdown
- The decline from a peak balance to a lower balance.
- Risk/Reward
- Potential gain divided by potential loss.
Key takeaways
- Losses compound against you
- We never suggest how much you should risk