Risk management is the part of trading that decides whether you survive long enough to get good at it. In Urdu we might call it nuqsan ko qaboo mein rakhna: keeping losses under control. No strategy wins every time, so the goal is to make sure that losing trades stay small while winning trades are allowed to grow.
Rule 1: Risk a small, fixed part of your capital per trade
Many traders limit the risk on any single trade to 1–2% of their total trading capital. With Rs 500,000, a 1% risk is Rs 5,000. That means a run of bad trades hurts, but does not wipe you out.
Rule 2: Always know your exit before you enter
Before buying, decide where you will get out if you are wrong, using a stop loss based on the chart (for example, just below support).
Rule 3: Size your position from the stop loss
Position size = amount you are willing to risk ÷ distance to your stop loss.
Example: you are willing to risk Rs 5,000. You buy at Rs 100 with a stop loss at Rs 95, a risk of Rs 5 per share. Rs 5,000 ÷ Rs 5 = 1,000 shares. If the stop were at Rs 90, you would buy only 500 shares.
Rule 4: Compare risk with realistic reward
If you risk Rs 5 per share, aim for trades where the realistic target is at least Rs 10 away (a 1:2 risk-reward ratio). Then you can be right less than half the time and still come out ahead.
Rule 5: Don’t put all your eggs in one basket
- Avoid putting most of your money into one share or one sector.
- Be careful with several positions that tend to move together.
- Keep some cash available instead of being fully invested at all times.
Video: 3 strategies to protect your portfolio
Rule 6: Control your emotions
- Don’t take a “revenge trade” straight after a loss.
- Don’t increase your position size because you feel sure.
- Stop trading for the day or week after a set number of losses.
Rule 7: Keep a trading journal
Record each trade’s entry, stop, target, size and reason, and the result. Reviewing it monthly shows which setups work for you and which mistakes keep repeating.
Want to go beyond the basics?
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- Complete trading strategies, with clear rules for entries, exits and stop losses
- Real chart examples, worked through step by step
- How to combine indicators, chart patterns and risk management into one plan
- Techniques you can apply to the Pakistan Stock Exchange, crypto, forex and other live markets
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This article is for education only and is not investment advice. Trading shares involves risk, including the loss of capital.