Risk Tools

A trader who loses 70% of their account needs to turn the remaining capital into 3.3× just to get back to where they started. Never let losses compound to this level.

Required Gain = 1 / (1 - Loss%) - 1

e.g. 50% loss → 1/(1-0.5)-1 = 100% required

The 1–2% Rule

Never risk more than 1–2% of your total account equity on a single trade. If you have a $10,000 account, your max loss per trade should be $100–$200. This keeps you alive through drawdown streaks.

Define Your Exit Before Entry

Place your stop loss before you enter. Emotional stop-loss placement after entry is one of the most common causes of outsized losses. Know your risk in dollars before you click buy.

Understand Asset Correlation

Holding AAPL, MSFT, and QQQ simultaneously is not diversification — they move together. Monitor correlation to avoid hidden concentration risk that amplifies drawdown during sector selloffs.

Position Sizing is Survival

Position size determines how much of your account you risk per trade. Proper sizing means even a 10-trade losing streak won't wipe your account. Size small, stay in the game.

R-Multiple Thinking

Think in R-multiples (risk units) rather than dollars. A 3R win means you made 3x what you risked. Aim for a minimum 2:1 reward-to-risk ratio on every trade to stay profitable even with a 40% win rate.

The Drawdown Math

A 50% loss requires a 100% gain just to break even. A 70% loss requires 233%. This is why capital preservation isn't just important — it's the entire game. Protect the downside obsessively.

Max Daily Loss Limit

Professional traders set a daily max loss (e.g. 3% of account). Once hit, they stop trading for the day. This prevents revenge trading — one of the fastest ways to blow up a funded account.

Trade Plan Before Market Open

Write your trade plan the night before or pre-market. Define: ticker, entry trigger, stop loss, target, position size, and invalidation scenario. If conditions aren't met, don't trade.