Well, Often most of the beginners or even the experienced traders in trading focus on trading strategies or methods with which they can enter and exit from the markets.
Note: don’t forget to leave your valuable feedback in the comment section.
However, unfortunately, the most important and major part of trading that is Money management and Risk management is neglected.
in the 100% circle of trading, 70% of the part goes to discipline, RM(Risk Management) & MM(Money Management). The remaining 30% goes to trading strategies or methods.
When it comes to Money Management there are plenty of options available but one should follow the RM & MM plans based on the objective they are trying to achieve in the market.
Majorly used MM Strategies are :
Fixed Fraction
Fixed Ratio
A fixed ratio method is used when the trader has an objective of compounding small accounts aggressively, Whereas Fixed fraction is nothing but Risking x% on an individual trade or increasing the lot size with a variable called DELTA.
In this article, I want to share a fixed fraction method that I use personally.
We often heard from all trading gurus that one should not risk more than 1–2% on any trade.
But remember!
Risk is directly proportional to rewards, Hence taking an optimal risk per trade is essential to achieve the individual goals in trading.
Then How can I decide the optimal risk % for my trading?
Well,
To get to the answer to this question, you need to know a few important parameters in the trading system.
1) Risk of Ruin (Click Here [Risk of Ruin](https://www.investopedia.com/terms/r/risk-of-ruin.asp "www.investopedia.com"))
2) Probability of Win (Probable win rate of the system)
3) Reward/Loss ratio (in short Profit Pactor)
4) Loss level (The max risk that you want to take in the trading account )
Once you have the above parameters then you can easily arrive at the optimal risk % per trade.
I am utilizing the Risk of Ruin calculator from [https://fxjake.com/risk/](https://fxjake.com/risk/ "fxjake.com")
If you visit this website: [https://fxjake.com/risk/](https://fxjake.com/risk/ "fxjake.com")
We have the important parameters in Image1
Image 1
Read all the comments carefully in the above pic.
To get these parameters, One should backtest at least for 1000–2000 Trades.
So, in the above case, the optimal risk is 2.3%/Trade.
Now let’s Increase the risk per trade and see the details,
Read the comments in Image 2
Image 2
Its as simple as that, If you have your trading system parameters, Just plug in them in this calculator and click on calculate and make sure that risk of ruin is below 1%.
There are no thumb rules out there, Its the method personally I use when I deploy a fixed fraction method.
Note: Don't forget to leave your valuable feedback in the comment section.
Hope this helps you,
Happy Trading:)
![How to manage the RISK in TRADING? [MUST READ]](/_next/image?url=https%3A%2F%2Fcdn.hashnode.com%2Fres%2Fhashnode%2Fimage%2Fupload%2Fv1697988293882%2Ff76d4453-a312-4395-90fb-ef9b6c967263.png&w=3840&q=75)
