There are many types of trading risk management, but here are five of the most common: Position Sizing: Position sizing is the process of determining the appropriate amount of capital to allocate to a trade based on the trader's risk appetite, trading strategy, and market conditions. This is done to ensure that the trader is not risking too much capital on any single trade. Stop Loss Orders: Stop loss orders are orders placed with a broker to sell a security when it reaches a certain price. This is done to limit the trader's losses on a trade in case the market moves against them. Risk-Reward Ratio: The risk-reward ratio is the ratio of potential profit to potential loss on a trade. Traders aim to achieve a favorable risk-reward ratio by setting their profit targets at least twice as large as their stop-loss levels. Diversification: Diversification is the practice of spreading trading capital across multiple assets or markets to reduce the impact of any single trade on the trader's portfolio. Diversification helps to mitigate risks associated with individual assets or markets. Trading Plan: A trading plan is a set of rules and guidelines that traders use to make trading decisions. A trading plan includes entry and exit points, position sizing rules, risk management strategies, and trading goals. By following a trading plan, traders can reduce emotional bias and make more disciplined trading decisions. These types of trading risk management tools are not mutually exclusive and can be combined to develop a comprehensive risk management strategy. Effective risk management is essential for successful trading and can help traders avoid large losses and maximize profits.