Risk management 101: stops & position size

Beginners think about "how to win"; veterans think first about "how to afford to lose". Risk management isn't an indicator, but it decides whether you stay in the market long term. Here's a simple, executable framework.

First, decide "how much you'll lose per trade"

A common practice is to risk only a fixed small percent of total capital per trade (say 1–2%). Then even a losing streak won't gut the account, and you're around to catch your kind of move.

Where the stop goes

A stop isn't a made-up number — it belongs where the idea is invalidated: below a key support, or where a trend line breaks. If price gets there, your read was wrong — accept it.

How to size the position

Three things link up: amount you'll risk ÷ stop distance per unit = quantity to buy. Wider stop, smaller size; tighter stop, larger size — all locking the same risk. Then check reward:risk — potential gain should at least cover the risk (say 2:1+) for a positive long-run edge.

Make discipline concrete

Decide the stop and target before you enter; use alerts to watch levels and a paper account to rehearse execution. The enemy is usually emotion, not the market — writing rules down and following them beats any indicator.