Why this comes first
Most new traders spend their first months looking for the entry that wins. Traders who are still here after a year spent that time on something less exciting: making sure no single trade, and no single bad week, can take them out of the game.
You will have losing trades. Risk management is what decides whether they are a cost of doing business or the end of the business.
Risk a fixed fraction per trade
Decide, before the trade, the most it may cost you — as a percentage of the account. A common starting point is 1%. On a 1,000-dollar account that is 10 dollars.
- 1% per trade: ten straight losses cost about 10% of the account. Survivable.
- 10% per trade: ten straight losses cost about 65%. You are trading to get back to where you started.
The percentage decides your position size, through the stop distance — the position sizing lesson does the arithmetic.
Three rules that do most of the work
- 1.Every trade has a stop loss before it opens. No exceptions, no "I'll watch it".
- 2.Risk is fixed; volume adapts. A wide stop means a smaller position, not a bigger loss.
- 3.Stop trading after a defined daily loss. Two or three losses in a row is the moment decisions get worse, not better.
The arithmetic of drawdown
| Loss | Gain needed to recover |
|---|---|
| 10% | 11% |
| 25% | 33% |
| 50% | 100% |
| 75% | 300% |
Losses compound against you. The smaller you keep each one, the less the recovery asks of you.
Summary
Fix the risk per trade as a small percentage, place the stop before the entry, and let volume adapt to the stop. It is not a strategy — it is what lets any strategy survive long enough to work.