Define your risk per trade
Choose a maximum acceptable risk for each trade based on your account size, experience, strategy, and financial circumstances. The rule should be defined before a trade is opened.
Do not increase the risk simply because the previous trade lost.
Set daily and weekly limits
A daily or weekly loss limit can help prevent a difficult trading session from becoming an uncontrolled sequence of trades.
When the limit is reached, stop trading and review what happened instead of trying to recover immediately.
Create a pre-trade checklist
A checklist helps ensure that the same important questions are considered before each trade.
- Is there a clear trading setup?
- Where is the entry?
- Where is the stop-loss?
- What is the maximum monetary risk?
- What is the planned target?
- Is the position size appropriate?
- Are major news or volatility conditions relevant?
- Does the trade follow the strategy?
Review your performance
A trading journal should record the setup, entry, exit, position size, stop-loss, target, result, and emotional state. Reviewing this information can reveal whether losses come from the strategy or from breaking risk rules.
A risk management plan should be improved carefully based on evidence rather than changed after every individual trade.