Advanced Risk Management

Advanced risk management separates professionals from amateurs.

Portfolio Heat



• Maximum total risk exposure
• Usually 5-10% of account
• Sum of all open position risks

Correlation Risk


What is Correlation?

• How pairs move together
• EUR/USD and GBP/USD often correlate
• Going long both = doubling risk

Managing Correlation

• Don't take same-direction trades on correlated pairs
• Or reduce position size on each
• Use correlation matrix tools

Scaling Strategies

Scaling In

• Enter partial position first
• Add on confirmation
• Average entry price improves

Scaling Out

• Take partial profits at targets
• Let remainder run
• Lock in profits while riding trends

Volatility-Based Sizing

• ATR (Average True Range) based stops
• Wider stops in high volatility
• Smaller position sizes accordingly
• Consistent risk regardless of conditions

Drawdown Management

Maximum Drawdown Rules

• Reduce size after X% drawdown
• Stop trading after Y% drawdown
• Review and reset

Example Framework

• 5% drawdown: Reduce size by 50%
• 10% drawdown: Stop trading, review
• Rebuild gradually

Professional Tips

1. Always know your max risk before trading
2. Never move stops to increase risk
3. Reduce size during losing streaks
4. Protect capital above all else