All levels · Discipline · 6 lessons · about 24 min

Risk & Position Sizing

How much to risk, where stops go, and how to size so a losing streak doesn't end you.

  1. 01Risk per tradeMost traders think about what a trade can make. The first question should be what it can lose.
  2. 02Stop placementA stop placed at a round number or at whatever distance produces a tidy dollar loss is a random stop.
  3. 03Position sizing mathShares = risk amount divided by stop distance. Your position size is the output of risk management, not a separate decision.
  4. 04Risk/rewardThe amount you risk on a trade is 1R. If your stop loss costs $100 in dollar terms, 1R = $100. A 2R winner returns $200.
  5. 05DrawdownsLosing 20% does not mean you need 20% to recover. You need 25%. A 50% drawdown requires 100% just to get back to flat.
  6. 06Sizing optionsWhen you buy an option, the premium is the most you can lose. Options can go to zero in a single session.

Educational content only. Not financial advice.