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Risk management essentials

1 min read4 sections

TABLE OF CONTENTS

Most accounts are not lost on bad trades, they are lost on bad sizing. These four frameworks keep a losing streak survivable.

Fixed-fractional sizing

Risk a constant percentage of equity per trade, commonly 1%. As the account grows, position size grows with it; as it shrinks, exposure falls automatically, smoothing the equity curve.

Defining your stop first

Decide where the trade is wrong before you decide how big it is. Your stop distance and your risk budget together determine size, never the other way around.

Correlation awareness

Three correlated longs are one big position wearing a disguise. Treat correlated exposure as a single risk unit so a single news event cannot hit every position at once.

The daily loss limit

Set a maximum daily loss, typically 2, 3% of equity. Hit it and stop. This single rule prevents most blow-up scenarios.

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