Risks from induced earthquakes caused by hydraulic fracturing are a growing concern with a need for effective management. Here, we develop a risk‐informed strategy for choosing red and yellow traffic light thresholds based on the current understanding of induced earthquakes. To do so, we utilize probabilistic maximum magnitudes, magnitude to ground‐motion relationships, population densities, statistical distributions of site amplification, and felt or damaging ground‐motion thresholds to compute the risk of damage or nuisance. Risk curves for various forecast scenarios highlight two proposed guidelines. First, setting red‐light thresholds within the nuisance range of ground motions reduces the chances that runaway earthquakes could cause unacceptable damage. Second, setting yellow‐light thresholds approximately two magnitude units less than the red light ensures that operators have a sufficient opportunity to enact mitigation strategies. We compare the differences in risk between several real‐life traffic light cases to illustrate how this approach could allow regulators to design traffic light protocols in a risk‐informed manner and thus balance the consequences of their decisions more effectively. Our approach also promotes the transparent communication of risk to all involved stakeholders.