How to control risk? Some risk management tricksGBP/JPYOANDA:GBPJPYEspeculador96Risk management is fundamental in the investment ecosystem, and having absolute control over capital is often overlooked. Today I’m going to show you something new: How to keep the same percentage of profits or losses set by our trading plan under all circumstances. When is leverage strictly necessary? Leverage is essential if we want to trade in low-volatility conditions, where small price fluctuations would not translate into consistent profits. For example, currencies have low volatility. In a trade I posted on my Spanish-speaking profile on April 22 in GBP/JPY, I was able to calculate beforehand that from the entry point to the Stop Loss (SL) there was a price movement of 1.27%. Without leverage, trading this would have been a terrible decision. It would mean that with a 1:1 risk-reward ratio we would be willing to win or lose only 1.27%. On most platforms, commissions alone would have eaten us alive. However, wisely used leverage changes everything. If I was only willing to lose 15% of the trade amount, I just had to divide 15% by 1.27% to know the necessary leverage: Leverage = % of loss you’re willing to accept / % of volatility from entry point to exit point (SL) 15% / 1.27% = 11.81 With 11x leverage, my profits (or losses) would be the ones I had previously set (approximately 15%) if my SL or TP was triggered. When should you NOT use leverage? In Figure 1, I show an analysis (Tesla) that I published on May 2 on my Spanish-speaking profile. The volatility percentage from the entry point to the SL in my trade was 23.38%. Such a high movement percentage makes leverage completely unnecessary, considering that according to my trading plan I aim to keep my losses controlled (15% per trade). A 1:1 risk-reward ratio would mean that without leverage I would be exposed to winning or losing 23.38% of the invested capital. Figure 1 How to keep my 15% loss limit in a highly volatile asset? In the Tesla example, where volatility is high, the solution is simple: reduce the percentage of capital invested. To do this, we just subtract 23.38% and 15% (the percentage of loss we are willing to accept per trade) and then subtract the result from our usual trade amount. 23.38% - 15% = 8.38% Let’s imagine I use $200 per trade. To calculate 8.38% of $200, we simply multiply 200 × 8.38/100. With this simple calculation we determine that 8.38% equals about $16.76 of the $200. Then we subtract that value from $200: $200 - $16.76 = $183.24 In summary, if we reduced the trade amount to $183.24, it wouldn’t matter if Tesla moved up or down 23.38%. We would still be making or losing 15% of the original $200, thereby respecting our risk management. Conclusions: I believe risk management is the weak point of most investors. My intention has been to show, with practical examples, how easily trades can be executed while respecting the parameters of a trading plan. Thank you for your time!