4. Risk Management Strategies

Determining a Stop Loss

One way to start determining your reward to risk ratio is to formulate your stop loss level. Your stop loss level could be a percent per each trade. Alternatively, it could a dollar amount or below a specific chart point trigger.

A percent return is one of the easier calculations. Your first step is to determine whether your trading strategy can be successful. The best way to do this is to back-test it. You can even do this manually by looking to see if it worked in the past. The next step would be to test your strategy in real-time. You can use this same method for a dollar figure instead of a percent figure.

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