Risk Management
Good traders aren't right more often. They lose small when wrong and let winners run. These six rules keep you in the game long enough for your edge to work.
1. Risk 1–2% per trade
2. Size from your stop, not your conviction
3. Aim for at least 1:2 risk-reward
4. Put the stop where the idea is wrong
5. Diversify across sectors
6. Set a daily or weekly loss limit
Worked example: sizing a trade
- Account: $25,000 · Risk per trade: 1% = $250
- Entry: $100 · Stop below support: $95 → risk per share $5
- Position size: $250 ÷ $5 = 50 shares ($5,000)
- Target at 1:2 risk-reward: $100 + 2 × $5 = $110 → potential gain $500
Why big losses are so hard to recover
| Loss | Gain needed to break even |
|---|---|
| −10% | +11.1% |
| −20% | +25% |
| −30% | +42.9% |
| −40% | +66.7% |
| −50% | +100% |
| −75% | +300% |
Win rate you need to break even
| Risk : Reward | Break-even win rate |
|---|---|
| 1 : 1 | 50% |
| 1 : 1.5 | 40% |
| 1 : 2 | 33% |
| 1 : 3 | 25% |
Before costs. Higher reward per trade means you can afford to be wrong more often. Risk-reward calculator →
Educational information only, not investment advice. Market data may be delayed.
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