Glossary
Risk Management
The process of controlling potential losses through position sizing, stops, and diversification.
Risk management is the set of rules that protects trading capital. It includes the 1% rule, stop losses, drawdown limits, and correlation control. Good risk management can make a mediocre edge profitable.
Key Points
- Always define maximum risk before entering a trade.
- Diversification reduces portfolio drawdowns.
- Position sizing matters more than entry timing.