Risk Management
Set of rules to limit losses and protect capital.
Beginner-friendly explanation
Risk management helps avoid losing everything when a trade goes wrong. It means setting in advance how much you're willing to lose per trade. It’s a basic rule to avoid trading randomly. Example: You don’t want to lose more than €20 on a trade. You size your position and stop loss accordingly.
Intermediate-level insight
Good risk management combines several elements: fixed risk per trade (e.g. 1% of capital), use of technical stop losses, risk/reward ratio calculation, position sizing based on volatility. It helps preserve capital and avoid having a few losses wipe out all gains. Example: A trader with €10,000 capital risks 1% per trade (€100). He sizes every position accordingly.
Advanced perspective
Risk management includes probabilistic and contextual models: portfolio variance analysis (VaR, CVaR), dynamic adaptation to volatility regimes, allocation based on asset correlations, stress-test scenarios. In algorithmic trading, these parameters are coded and adjusted in real time. It’s a key pillar of any robust strategy — more important than raw performance. Example: A multi-asset portfolio adjusts exposures using a covariance model, reducing leverage if crypto and stocks become more correlated.
Trading Strategies
risk management, stop loss, capital, R/R ratio, position sizing, volatility, stress test, correlation, VaR