Risk management is the part of trading that decides whether you survive long enough for a good strategy to pay off. Automation makes it more important, not less: a bot will execute your risk rules — or your lack of them — on every single trade.
Position sizing#
Position size is how much of your account a single trade puts at risk. The most common approach is to risk a small, fixed percentage of the account per trade — often 1–2%. Sizing this way means no single loss can seriously damage the account, and a losing streak is survivable rather than fatal.
Avoid sizing by "how confident I feel." A bot has no feelings; give it a rule.
Stop-loss#
A stop-loss is a predefined exit that closes a losing trade before it gets worse. It is what turns "risk 2% per trade" from a wish into a fact: the stop distance and the position size together determine your actual dollar risk.
- Place stops based on where your idea is wrong, not on how much you're willing to lose emotionally.
- Every automated strategy should define one. Without a stop, a single trade can hold an unbounded loss.
Take-profit#
A take-profit closes a winning trade at a target. It locks in gains and removes the temptation to hold too long. Many strategies aim for a reward-to-risk ratio above 1 — risking 1 to make 1.5 or 2 — so that being right less than half the time can still be profitable.
Leverage#
Leverage multiplies your position beyond your capital. It magnifies gains and losses equally, and it moves your liquidation price closer. Beginners should treat high leverage as a way to lose quickly. If you use it, keep it low and size accordingly.
Diversification and correlation#
Running several strategies or markets can smooth results — but only if they aren't all the same bet in disguise. Two long crypto strategies will lose together in a crash. Be honest about whether your positions are actually independent.
The rule that ties it together#
Decide your maximum risk per trade and per account before you deploy anything, encode it in your execution settings, and start in paper mode. See Execution Settings and Deploying Live vs Paper.