> ## Documentation Index
> Fetch the complete documentation index at: https://docs.ezorro.app/llms.txt
> Use this file to discover all available pages before exploring further.

# Professional Risk Management

> Learn advanced risk management techniques to structure your trading approach and support long-term discipline with automated trading systems.

Consistent risk management is a key part of many trading approaches. Explore how to manage exposure, limit downside, and apply systematic controls within your strategies.

<Card title="Implement Risk Controls" icon="rocket" href="https://platform.ezorro.app">
  Build automated risk management into every strategy using our AI assistant. Apply professional-grade controls to manage exposure.
</Card>

## Core Principles

<CardGroup cols={3}>
  <Card title="2% Rule" icon="shield">
    Limit risk to no more than 2% of your account on any single trade. A guideline to help withstand extended losing streaks.
  </Card>

  <Card title="6% Portfolio Heat" icon="fire">
    Keep total portfolio risk below 6% across all open positions. Helps reduce overexposure during active periods.
  </Card>

  <Card title="Risk-Reward Ratio" icon="scale-balanced">
    Aim for trades with at least 2:1 reward-to-risk ratio. This approach can support positive results even with moderate win rates.
  </Card>
</CardGroup>

## How Risk Management Works

<Steps>
  <Step title="Calculate Position Size">
    Determine position sizes based on risk percentage and stop-loss distance. Stay within predefined risk limits.
  </Step>

  <Step title="Set Stop Losses">
    Use stop losses on every trade. Options include percentage-based, ATR-based, or trailing stops.
  </Step>

  <Step title="Monitor Portfolio Heat">
    Track total risk across all positions. Reduce exposure when thresholds are reached.
  </Step>
</Steps>

## Position Sizing Methods

<CardGroup cols={2}>
  <Card title="Fixed Percentage" icon="percent">
    Risk the same percentage on every trade. Example: "Use 1% risk per trade based on stop-loss distance."
  </Card>

  <Card title="Volatility-Based" icon="chart-line">
    Adjust position size based on market volatility: "Use smaller sizes when ATR volatility is high."
  </Card>

  <Card title="Risk Parity" icon="equals">
    Equalize risk contribution across positions regardless of price or volatility.
  </Card>

  <Card title="Kelly Criterion" icon="calculator">
    A mathematical approach that adjusts position size based on probability and average profit/loss ratios.
  </Card>
</CardGroup>

## Stop Loss Types

<CardGroup cols={3}>
  <Card title="Percentage-Based" icon="percent">
    Example: "Set stop loss at 5% below entry price."
  </Card>

  <Card title="ATR-Based" icon="chart-line">
    Adapts to volatility: "Set stop at 2x ATR below entry price."
  </Card>

  <Card title="Trailing Stops" icon="arrow-up">
    "Use a trailing stop that follows the price upward but does not move down."
  </Card>
</CardGroup>

## Portfolio Risk Controls

<CardGroup cols={2}>
  <Card title="Correlation Management" icon="link">
    "Limit correlation between positions to reduce concentrated risk. Avoid highly correlated assets."
  </Card>

  <Card title="Sector Limits" icon="chart-pie">
    "Cap allocation to a single sector or industry to encourage diversification."
  </Card>

  <Card title="Drawdown Limits" icon="shield">
    "If portfolio drawdown exceeds a set threshold, pause trading and review strategy."
  </Card>

  <Card title="Volatility Monitoring" icon="chart-line">
    "Reduce position sizes when market volatility exceeds normal ranges."
  </Card>
</CardGroup>

## Account Size Guidelines

<Steps>
  <Step title="Small Accounts ($1,000–$10,000)">
    Focus on percentage-based risk controls: 2% per trade maximum, a few well-sized positions.
  </Step>

  <Step title="Medium Accounts ($10,000–$100,000)">
    Balanced approach: 1–1.5% per trade, greater diversification across sectors.
  </Step>

  <Step title="Large Accounts ($100,000+)">
    Use tighter risk controls: 0.5–1% per trade, more positions, and multi-strategy allocation.
  </Step>
</Steps>

## Common Mistakes to Avoid

<CardGroup cols={2}>
  <Card title="Removing Stop Losses" icon="x">
    Avoid removing stops hoping the market will turn. This increases risk significantly.
  </Card>

  <Card title="Averaging Down" icon="arrow-down">
    Adding to losing positions multiplies risk instead of reducing it.
  </Card>

  <Card title="Revenge Trading" icon="flame">
    Attempting to recover losses quickly often leads to bigger losses and poor decisions.
  </Card>

  <Card title="Ignoring Correlation" icon="link">
    Holding many correlated positions can create concentrated, undiversified risk.
  </Card>
</CardGroup>

## Get Started

<Card title="Implement Risk Controls" icon="rocket" href="https://platform.ezorro.app">
  Add structured risk management into your strategies using our AI assistant. Manage exposure with professional-grade techniques.
</Card>

## Next Steps

<CardGroup cols={2}>
  <Card title="Beginner Strategies" icon="graduation-cap" href="/trading-strategies/beginner-strategies">
    Start with beginner-friendly strategies that include basic risk management rules.
  </Card>

  <Card title="Advanced Strategies" icon="chart-mixed" href="/trading-strategies/advanced-strategies">
    Learn advanced controls for multi-indicator and complex strategies.
  </Card>

  <Card title="Strategy Construction" icon="hammer" href="/technical/strategy-construction">
    Understand how to incorporate risk management into the strategy-building process.
  </Card>

  <Card title="Portfolio Optimization" icon="chart-pie" href="/trading-strategies/portfolio-optimization">
    Explore portfolio-level risk management and optimization techniques.
  </Card>
</CardGroup>

***

<sub>⚠️ Trading involves risk, including the possible loss of capital. eZorro does not guarantee profits or eliminate the risk of trading losses.</sub>