What is a risk management guideline described?

• A. Risk about 1% per day and focus on good risk-to-reward; avoid emotional decisions.
• B. Risk 20% per trade.
• C. Never limit losses.
• D. Trade only during high volatility.

Answer: (A)

Disciplined risk management means protecting capital by limiting how much you risk on a daily basis and by seeking trades with a favorable balance of reward to risk. By risking about 1% of your capital per day, you prevent a string of losses from wiping you out, keeping you in the game long enough to benefit from likely favorable odds over time. Pairing that with a focus on good risk-to-reward ensures each trade has a meaningful potential payoff relative to the amount risked, which helps maintain a positive expectancy even with a win rate that’s not perfect. Importantly, keeping emotions in check avoids revenge trading or overtrading after losses, which can blow up a trading plan.

Raising the per-trade risk to a large portion of capital, like 20%, can lead to steep drawdowns quickly and undermine long-term survival. Not setting limits on losses removes the essential protective mechanism that prevents catastrophic account damage. Trading only during high volatility ignores the need for consistent risk controls and can expose you to unpredictable swings; volatility can present both opportunities and risks, and without disciplined limits, it’s easy to overextend.