Every trade involves risk and the potential to lose money. Most beginning traders make the mistake of focusing only on profits and failing to plan for when their trade fails.
The key to consistent profitability is to learn to manage your risk.
Even the best traders and systems go into periods of drawdowns where there are multiple losing trades in a row. An experienced trader will be aware of this possibility and plan ahead,. Without proper risk management, you could blow your account within one or two lost trades.
At The Birb Nest, we encourage all members to set a maximum risk per trade of 2% or less. This means that, after your stop loss is hit, no more than 2% of your available capital should be lost.
For example, if trading with a $10,000 account, you should adjust the size of your trade so that you only lose a maximum of $200 if your stop loss is hit.
The following video explains the 2% Risk Per Trade risk management principle.