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% |