Trading Classroom Lesson 5: Risk & Money Management

📘 Introduction

Many new traders focus only on finding the “perfect strategy.” But even the best strategy will fail without proper risk and money management.

Think of trading like running a business: your capital is your inventory. If you don’t protect it, you’ll go broke before you can succeed.

In this lesson, we’ll cover the essentials of risk and money management every trader must master.

💰 1. Risk Per Trade (The 1–3% Rule)

The golden rule of trading: risk only 1–3% of your account per trade.

If you have $1,000, risk = $10–30 per trade.
This keeps you in the game even if you hit a losing streak.

👉 Risking too much (10–20%) can wipe out your account after only a few bad trades.

📏 2. Position Sizing

Position sizing = how many units (lots, shares, tokens) you should trade.

Formula:

Position Size = (Account Size x Risk %) ÷ Stop Loss Distance

Example:

Account: $5,000
Risk: 2% = $100
Stop Loss: 50 pips
Position Size = $100 ÷ 50 = $2 per pip

This ensures your trade risk never exceeds your plan.

⚖️ 3. Risk-to-Reward Ratio (R:R)

Successful traders aim for a minimum R:R of 1:2.

Risk $100 → Aim to make $200.
Even if you lose more often than you win, profits can still grow.

👉 Avoid trades where the potential reward is smaller than the risk.

📈 4. Compounding Growth

Money management allows you to grow steadily.

Win small, protect capital, and let profits compound.
Example: Gaining 5% per month grows a $1,000 account to $1,630 in just 10 months.

Slow and steady beats risky all-in trades.

🧠 5. Psychological Benefits

Good risk management helps with psychology:
✅ Less stress – losses are controlled
✅ More confidence – you know exactly what you can lose
✅ Consistency – no “all-in” gambling mindset

Trading becomes a process, not an emotional rollercoaster.

📊 6. Tools for Risk & Money Management

Stop Loss & Take Profit Orders → automate exits
Position Size Calculators → avoid over-leverage
AI Predictions on HKAN.trade → improve decision-making with data-driven insights

📌 Conclusion

Risk and money management are the foundation of long-term trading success. Remember:

Risk only 1–3% per trade.
Calculate position size based on stop loss.
Aim for a risk-to-reward ratio of at least 1:2.
Focus on compounding growth.
Control your psychology with clear rules.

👉 Master this, and your trading journey will be safer, smarter, and more profitable.

Stay tuned for Lesson 6: Trading Psychology, where we’ll cover discipline, emotions, and mindset!