Forget about the rewards and doubling your money in one year. Knowing how much risks you are taking ensures you survive long enough to give yourself the chance to make lots of money.

First, decide how much money you are putting aside to trade. It’s the same as setting aside money to set up a business. Let’s say you decide to invest US$100,000. Also, decide how much money you are willing to lose before this business venture folds. I like to use 30 percent.

Next decide how much risk you want to take on every trade. Most traders would put 1 percent as a minimum for any open positions at any one time. This means that you ensure that whatever trade you open, your stop loss or risk is only US$1,000. For a EUR100,000 position against the USD, your stop loss should be 100 pips away. For a 30 percent ...