Chapter 8
15-20 min

Risk Management

Practical tools to protect your capital and optimize position sizing

8.1

The 1-2% Risk Rule

1%
Maximum Risk Per Trade:
$100.00

Why 1-2%? With 1% risk, you can survive 100 losing trades in a row. With 5% risk, just 20 losses wipes out your account.

Beginner Tip: Start with 0.5-1% until you prove consistent profitability over 3+ months.

8.2

Position Sizing Calculator

Formulas (Educational)

Risk$ = Account × Risk%

PipSize:

  • • EURUSD, GBPUSD, etc.: 0.0001
  • • JPY pairs: 0.01
  • • XAUUSD (simplified): 0.10

PipValue (USD account, approx.):

  • • 1 lot ≈ $10/pip
  • • 0.1 lot ≈ $1/pip
  • • 0.01 lot ≈ $0.10/pip

LotSize = Risk$ / (SL_pips × PipValuePerLot)

For Buy: SL = Entry − SL_pips × PipSize

For Sell: SL = Entry + SL_pips × PipSize

Interactive Calculator

Enter your account balance in US dollars

Risk percentage per trade, recommended 1-2%

Recommended Lot Size

0

Risk Amount

$0.00

Pip Value (1 lot)

$10.00/pip

Stop Loss Price

0

Trade Visualization

Entry: 1.1
SL: 0
↑
Buy

Important: Always verify pip values with your broker. Values shown are approximate for USD accounts.

Micro Lots: 0.01 lot = 1,000 units. Ideal for small accounts and testing.

8.3

Diversification & Correlation

Common Mistake: Trading EURUSD and USDCHF simultaneously is like risking 4% instead of 2% because they move inversely (-0.95 correlation).

Correlation Matrix (Sample Data)

PairEURUSDGBPUSDUSDJPYUSDCHF
EURUSD1.000.70-0.950.85
GBPUSD0.701.00-0.880.65
USDJPY-0.60-0.500.60-0.55
USDCHF-0.95-0.880.921.00

Reading: +0.7 to +1.0 = Strong Positive (move together), -0.7 to -1.0 = Strong Negative (move opposite)

Rule: Limit simultaneous trades in pairs with correlation > 0.7 or < -0.7

8.4

Risk/Reward Ratio & Expectancy

50%
1:2
Expectancy (per $1 risked):
$0.00

Breakeven strategy.

Formula: Expectancy = (Win Rate × RR) - (1 - Win Rate)

Example: 40% win rate with 2:1 RR → (0.4 × 2) - 0.6 = 0.2 → profitable!

Reality Check: You can be profitable with 30% win rate if your RR is 3:1 or better. Focus on risk/reward, not just accuracy.

8.5

Drawdown Management

20%
Recovery Needed:
0%
DrawdownRecovery NeededTrades (at 2% profit)
10%11.1%6 trades
20%25.0%13 trades
30%42.9%22 trades
50%100.0%50 trades
75%300.0%150 trades

Formula: Recovery% = Drawdown% / (100 - Drawdown%)

Protection Rule: Stop trading and re-evaluate your strategy if drawdown exceeds 20-25%. Never let it reach 50%.

8.6

Risk Rules for Automated Trading (EA)

⚠️ No "Set and Forget" - Markets Change

Risk profiles evolve with market conditions. Review EA settings monthly, monitor drawdowns weekly, and adjust parameters when volatility shifts.

Lot Size & Scaling Control

  • •Limit max lot size and lot increment steps
  • •No martingale without understanding the consequences (doubling after losses can wipe accounts)
  • •Use fixed fractional position sizing based on account percentage

Simultaneous Trades & Exposure

  • •Limit concurrent trades: 3-5 max to avoid over-exposure
  • •Currency exposure limits: Don't trade 5 EUR pairs simultaneously (correlated risk)
  • •Total portfolio risk ≤ 5-10% at any given time

Drawdown Limits (Auto-Stop)

  • •Daily loss limit: Stop trading if down 3-5% in one day
  • •Max equity DD: Halt EA if drawdown exceeds 10-15%
  • •Circuit breaker: Prevents catastrophic losses during black swan events

Logging & Monitoring

  • •Check Experts/Journal tab in MT5 for EA errors
  • •Set up DD alerts via email/Telegram when equity drops
  • •Periodically review .set files - adjust for changing volatility

EASY Bots Ecosystem: Your Money Management

You control: Lot sizes, risk limits, and trade frequency. EASY Bots provide strategies and keep .set files updated with optimal parameters.

Monitoring: Track performance metrics, drawdowns, and win rates at /analyze

Updates: We maintain strategy parameters; you maintain risk management settings

EA Installation Guide →Performance Monitoring →Demo Quick Start →
Quiz

Test Your Knowledge

Test Your Knowledge

Take this quick 3-question quiz to reinforce what you've learned. You can skip if you prefer.

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Risk Warning: Calculators are educational tools. Actual results depend on broker specifications, slippage, and market conditions.

Not Financial Advice: These tools demonstrate concepts. Consult a licensed financial advisor before trading.

Past Performance: Historical data and correlations can change. Always verify current market conditions.