Risk per trade

Two traders take the same fifty trades with the same entries and the same exits. One risks two per cent of the account on each, the other risks twenty per cent on some and two on others depending on how confident they feel. After fifty trades their results are not slightly different; they are unrecognisable.

Entry accuracy sets your win rate. Position size sets the shape of your equity curve, how deep the drawdowns go, and whether you are still trading at trade fifty. Of the two, only one can end the account, and it is not the entries.

This is also why “I was right but I got stopped” is usually a sizing complaint in disguise. A stop that is too tight for the instrument’s normal noise is a stop chosen to justify a size that was too big.

Decide one number: the percentage of the account you are willing to lose on a single trade. For most people starting out that is between 0.5 and 2 per cent. Write it down. It does not change because a setup looks better than usual.

On a 2,000 dollar account at one per cent, every trade risks 20 dollars. Not “about 20”, and not 60 on the good ones. The whole value of the rule is that it is arithmetic rather than a judgement call, which is precisely what you want at the moment your judgement is worst.

The percentage is of current equity, so it shrinks automatically in a losing run and grows in a winning one. That single property does more to protect an account than any indicator.

The formula has three inputs and no opinions: lots = risk in money ÷ (stop distance in points × value per point per lot).

Worked on gold: account 2,000 dollars, risk one per cent = 20 dollars. Your stop sits 40 cents away. One lot of gold is 100 ounces, so one lot loses 100 dollars per dollar of movement, which is 40 dollars over a 40-cent stop. Twenty divided by forty is 0.5 lots.

Notice the direction of causation. The stop comes from the chart — where the idea is wrong. The size is then calculated from it. Doing it the other way round, picking a size first and squeezing the stop to fit, is how accounts die.

Losses and recoveries are not symmetrical. Down ten per cent needs eleven per cent to get level. Down twenty-five needs thirty-three. Down fifty needs one hundred. Down eighty needs four hundred, which is why an eighty per cent drawdown is effectively terminal even though the account still has money in it.

That curve is the entire argument for small fixed risk. At one per cent per trade, ten losses in a row costs about nine and a half per cent and needs ten and a half to recover — unpleasant, survivable. At ten per cent per trade the same ten losses cost sixty-five per cent and need one hundred and eighty-six to recover.

Ten losses in a row is not a freak event. At a 50 per cent win rate it happens roughly once in a thousand trades, and a busy trader takes a thousand trades in a year.

One page, written before the session, containing five things: risk per trade as a percentage; the maximum number of positions open at once; a daily loss limit at which you stop for the day; the instruments you are allowed to trade; and the times you are allowed to trade them.

The daily loss limit is the one people skip and the one that saves accounts. Three per cent is a common choice. When it is hit, the platform closes — not because the next trade would necessarily lose, but because the version of you that has just lost three per cent is not the one who wrote the plan.

Review it monthly against your closed trades, not weekly against your feelings. If the plan was broken, the interesting question is which rule was broken and in what circumstances, because that pattern will repeat.