Risk Control and Money Management

If you risk too little on each trade, shown by the undertrading zone, the returns will be too low to overcome transaction costs, small losses and overhead (quote feeds, electricity, rent, subscription to Active Trader magazine, etc.) and trading will be a losing proposition.

Risk more and the returns will increase, but note that the potential drawdown (account losses you will need to endure to get the return — another cost of doing business) always increases as you increase the per-trade risk.


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