Setting Risk Tolerance and Establishing Risk-Reward Ratio:
Before entering any trade, it is crucial for traders to define their risk tolerance. Risk tolerance refers to the amount of capital a trader is willing to risk on a single trade or series of trades. It is important to establish a risk-reward ratio, which determines the potential profit relative to the amount of risk undertaken. By maintaining a favorable risk-reward ratio, traders can ensure that potential gains outweigh potential losses over the long term.