Risk Management
Protect your capital — beginner, intermediate, and advanced.
Beginner — Protect what you have
Why risk management matters
The first rule of trading is: do not lose your account. Even the best strategy fails without position sizing and stops.
The 1% rule
Risk no more than 1–2% of your account on a single trade. This lets you survive a losing streak and stay in the game.
Stop losses
A stop loss is a pre-set price where you exit if the trade moves against you. It removes emotion and caps losses.
Risk/reward ratio
Only take trades where the potential reward is at least twice the risk. With 1:2, you can be wrong half the time and still profit.
Intermediate — Sizing & correlation
Position sizing formula
Position size = (account risk $) ÷ (entry − stop). This keeps your dollar risk constant regardless of the asset or stop distance.
Correlation risk
Buying BTC, ETH and SOL at the same time is not diversification — they move together. Spread risk across uncorrelated markets.
Drawdowns
A drawdown is the peak-to-trough decline in your account. Expect them. A 50% drawdown needs a 100% gain just to break even.
R:R in practice
Set take-profit at 2× your stop distance. Move stop to breakeven once price reaches 1× the risk. This creates free trades.
Advanced — Survival math
Expectancy
Expectancy = (win rate × avg win) − (loss rate × avg loss). Positive expectancy means the strategy wins over many trades.
Kelly criterion
Kelly tells you the optimal fraction of equity to risk. In practice use half-Kelly or quarter-Kelly to reduce volatility.
Sequence risk
A string of losses is normal. Risk 5% per trade and four losses in a row costs 20%. Risk 1% and it costs 4%.
Tail risk
Black swan events move markets 5–10× normal volatility. Keep cash aside, use stops, and avoid max leverage near events.
Ready to practise?
Apply what you learn on the paper trading simulator with real market data and zero risk.