Why money management matters

A robust risk framework turns an edge into consistent equity growth and prevents a string of losses from crippling the account. The goal is not to avoid losses (impossible) but to predefine risk, size logically and keep drawdowns tolerable so you can execute the next trade objectively.

Risk per trade

• Use 0.5–2% per trade depending on volatility, quality of setup and account size.
• Smaller risk gives more opportunities to compound and reduces emotional pressure.

Position sizing formula

1. Compute stop distance in the instrument’s units (pips, ticks, points, %).
2. Monetary risk = Account × Risk%.
3. Position size = Monetary risk ÷ (Stop distance × value per unit).
4. Round to contract size; include fees and slippage buffers.

Portfolio and exposure rules

• Avoid stacking correlated positions (e.g., several USD longs). Define a max basket risk.
• Set a daily and weekly loss cap (e.g., 3R/day, 6R/week). If breached, stop trading and review.
• During high‑impact events, halve risk or stand aside unless your plan explicitly covers news trades.

Trade management

• Partial take‑profits at structure or fixed R multiples (1R/2R) smooth equity curves.
• Trail stops logically (swing structure or ATR). Avoid trailing too tight in early trend phases.
• Never widen a stop after entry; reduce size instead.

Compounding & drawdown control

Recalculate size periodically (weekly/monthly) rather than after every trade to reduce noise. If equity drops more than X% (your “max pain”), decrease risk until the account stabilizes. Protect time in the market—capital is your production machine.

Process & journaling

1. Document setups with screenshots and risk metrics.
2. Track expectancy (win rate × avg win − loss rate × avg loss).
3. Run weekly reviews; identify when risk should be dialed up or down.

Example

Account = $25,000; risk 1% = $250. Stop distance = 50 pips; pip value = $10/lot. Position size = 250 ÷ (50×10) = 0.5 lots. First target at 2R, trail remainder under higher lows. If three consecutive losing days occur or daily loss exceeds 3R, stop trading and review.

Checklist

• Risk% defined? Position size computed from stop distance?
• Basket risk/correlation checked?
• Exit plan (partials, trail) written before entry?
• Daily/weekly caps enforced by platform or alerts?

Playbook templates

Create A/B/C setup templates with predefined risk (e.g., A=1%, B=0.7%, C=0.5%), default targets and management rules. This reduces hesitation and keeps behavior consistent across market regimes.

Scaling in/out

• Pyramiding only when unrealized profit ≥ 1R and structure confirms continuation.
• De‑risk to break‑even after partial at 1R if statistics support it; otherwise keep initial stop.