Studies show that the number one mistake that losing traders make is not getting the balance right between risk and reward. Many let a losing trade continue in the hope that the market will reverse and turn that loss into a profit. The reverse approach is applied to profits too. A lot of traders are only too eager to quickly take a profit as they are worried it will otherwise disappear.
This is of course completely opposite to that well-worn market advice 'let your profits run and take losses quickly.' The maths here is simple enough: if you are, for example, losing £100 on trades that go wrong, and only making £50 on trades that go well, your trading account is probably only going to head in one direction: down.
Before you place a trade you should weigh up the potential profit versus the risk you are willing to take (risk/reward ratio). As a general rule of thumb, you would factor in double the potential profit amount (if not more) you expect to make versus the amount you stand to lose if the price moves in an unexpected direction.
If the trade does not fit those requirements, then the sensible approach is to pass on the trade and wait for a better opportunity to come up where the balance is more in your favour. This takes discipline of course – sadly, another trait that many traders just don’t have.