Free Trading School · Level 12: Advanced Risk, Testing and Going Live
Total exposure and correlated risk
Risking 1% per trade is only safe if you also limit how many trades are open and how related they are. Five open trades on five tech stocks is closer to one 5% bet on the tech sector.
- Set a maximum total open risk, for example 4 to 6% of the account.
- Limit positions in the same sector, currency or theme.
- Set a daily loss limit (for example 2 to 3%) after which you stop trading for the day.
- Reduce size before high-impact events and during unusually volatile markets.
Key takeaway
Risk per trade protects you from one bad trade. Exposure limits protect you from one bad day.
Quick answers
What do beginners need to know about total exposure and correlated risk?
Risking 1% per trade is only safe if you also limit how many trades are open and how related they are. Five open trades on five tech stocks is closer to one 5% bet on the tech sector.
What is the key takeaway from the lesson on total exposure and correlated risk?
Risk per trade protects you from one bad trade. Exposure limits protect you from one bad day.
Why limit correlated positions?
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They behave like one larger bet. Correlated trades tend to win and lose together.
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