Risk management & position sizing
The one skill that decides survival — and the simple math behind it.
Strategy gets the attention; sizing decides who is still trading next year. The core discipline is defining, before entry, exactly what you will lose if you are wrong — and making that number small enough to be boring.
Think in R
1R is the amount you risk on one trade — a fixed fraction of the account, commonly 1% or less while learning. Every outcome is then measured in R: a win that pays twice the risk is +2R, a stopped trade is −1R. This one habit makes results comparable across trades, sizes, and instruments — and makes the math of edge visible.
The sizing formula
Size is derived, never chosen by feel: shares = account risk ÷ per-share stop distance. A $10,000 account risking 1% has $100 of risk. If the structure says the stop belongs $2 away, that is 50 shares — not 500 because you feel confident. The stop distance comes from the chart; the dollar risk comes from the account; size is just the quotient.
Why small risk is non-negotiable
| Drawdown | Gain needed to recover |
|---|---|
| 10% | 11% |
| 25% | 33% |
| 50% | 100% |
| 75% | 300% |