Implement Risk Controls
Build automated risk management into every strategy using our AI assistant. Apply professional-grade controls to manage exposure.
Core Principles
2% Rule
Limit risk to no more than 2% of your account on any single trade. A guideline to help withstand extended losing streaks.
6% Portfolio Heat
Keep total portfolio risk below 6% across all open positions. Helps reduce overexposure during active periods.
Risk-Reward Ratio
Aim for trades with at least 2:1 reward-to-risk ratio. This approach can support positive results even with moderate win rates.
How Risk Management Works
1
Calculate Position Size
Determine position sizes based on risk percentage and stop-loss distance. Stay within predefined risk limits.
2
Set Stop Losses
Use stop losses on every trade. Options include percentage-based, ATR-based, or trailing stops.
3
Monitor Portfolio Heat
Track total risk across all positions. Reduce exposure when thresholds are reached.
Position Sizing Methods
Fixed Percentage
Risk the same percentage on every trade. Example: “Use 1% risk per trade based on stop-loss distance.”
Volatility-Based
Adjust position size based on market volatility: “Use smaller sizes when ATR volatility is high.”
Risk Parity
Equalize risk contribution across positions regardless of price or volatility.
Kelly Criterion
A mathematical approach that adjusts position size based on probability and average profit/loss ratios.
Stop Loss Types
Percentage-Based
Example: “Set stop loss at 5% below entry price.”
ATR-Based
Adapts to volatility: “Set stop at 2x ATR below entry price.”
Trailing Stops
“Use a trailing stop that follows the price upward but does not move down.”
Portfolio Risk Controls
Correlation Management
“Limit correlation between positions to reduce concentrated risk. Avoid highly correlated assets.”
Sector Limits
“Cap allocation to a single sector or industry to encourage diversification.”
Drawdown Limits
“If portfolio drawdown exceeds a set threshold, pause trading and review strategy.”
Volatility Monitoring
“Reduce position sizes when market volatility exceeds normal ranges.”
Account Size Guidelines
1
Small Accounts ($1,000–$10,000)
Focus on percentage-based risk controls: 2% per trade maximum, a few well-sized positions.
2
Medium Accounts ($10,000–$100,000)
Balanced approach: 1–1.5% per trade, greater diversification across sectors.
3
Large Accounts ($100,000+)
Use tighter risk controls: 0.5–1% per trade, more positions, and multi-strategy allocation.
Common Mistakes to Avoid
Removing Stop Losses
Avoid removing stops hoping the market will turn. This increases risk significantly.
Averaging Down
Adding to losing positions multiplies risk instead of reducing it.
Revenge Trading
Attempting to recover losses quickly often leads to bigger losses and poor decisions.
Ignoring Correlation
Holding many correlated positions can create concentrated, undiversified risk.
Get Started
Implement Risk Controls
Add structured risk management into your strategies using our AI assistant. Manage exposure with professional-grade techniques.
Next Steps
Beginner Strategies
Start with beginner-friendly strategies that include basic risk management rules.
Advanced Strategies
Learn advanced controls for multi-indicator and complex strategies.
Strategy Construction
Understand how to incorporate risk management into the strategy-building process.
Portfolio Optimization
Explore portfolio-level risk management and optimization techniques.
⚠️ Trading involves risk, including the possible loss of capital. eZorro does not guarantee profits or eliminate the risk of trading losses.