1. What is a stop-loss?
Answer: A stop-loss is your exit if the trade goes wrong.
It’s a pre-set price/order that automatically closes your trade to limit your loss.
Think: _"This is where I admit I was wrong."
Example: You buy at $100, SL at $95. If it hits $95, you’re out -$5.
2. What is take-profit?
Answer: A take-profit is your exit when the trade goes right.
It’s a pre-set price/order that automatically closes your trade to lock in profit.
Think: _"This is my target."
Example: You buy at $100, TP at $110. If it hits $110, you’re out +$10.
3. What is risk-to-reward ratio?
Answer: R:R = How much you risk vs how much you can make.
Formula: Risk: Reward
Example: Risk $5 to make $10 = 1:2 R:R
Rule: If you have a 1:2, you only need to win 40% of trades to be profitable.
4. What is position sizing?
Answer: Position sizing = How much of the asset you buy so that you only risk X amount.
It’s NOT "how many lots". It’s "how much will I lose if my SL hits".
Formula: Position Size =
Example: $100 account risk, SL is 50 pips away = you size so you only lose $100.
5. Why is risk management important?
Answer: Because 1 bad trade can blow your account.
Risk management keeps you alive so you can trade tomorrow.
Without it: Emotions, revenge trading, blown accounts.
With it: You survive losing streaks and let winners pay you.
6. How much should a trader risk per trade?
Answer: The golden rule: 1-2% of your account per trade.
Pros use 0.5% - 1%.
Example: $10,000 account x 1% = $100 max loss per trade.
Why? You can lose 10 times in a row and still have 90% of your account left.
7. What is drawdown?
Answer: Drawdown = How much your account drops from its peak.
Example: You peak at $10,000, then drop to $8,000 = 20% drawdown.
It measures how much pain you went through. Low drawdown = pro trader.
