Exposing too much of your capital to a single trade or asset class significantly increases your risk. If the market moves against you, it could wipe out a large portion of your account in one sudden, adverse move. The key to long-term trading success lies in effective risk management, which means allocating only a small percentage of your total capital—typically 1-2%—to any single trade or market. By keeping your exposure limited, you protect yourself from catastrophic losses and ensure that no single trade has the potential to derail your overall trading plan. Proper risk management also involves balancing your portfolio and diversifying your trades to spread the risk across different assets or markets.

Being disciplined with position sizing helps you stay in the game longer, even during challenging market conditions. It reduces emotional stress and allows you to focus on consistent execution, rather than worrying about outsized risks from any one trade.

. Why use a trading journal: By tracking your position sizes and overall exposure in a trading journal, you gain valuable insight into whether you’re risking too much on individual trades or markets. Your journal helps you monitor whether you are adhering to your risk management rules and prevents overleveraging by highlighting patterns of risk-taking behavior. Reviewing your trades over time will show whether you are consistently sticking to your predefined risk limits and provide a clear record of when adjustments are needed. This practice ensures that you maintain proper discipline and avoid risking too much capital on any one trade, safeguarding your long-term trading success.

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