Consistent profitability in trading is impossible without rigorous risk management. The principles below form the foundation of disciplined, rule-based trading — protecting capital is always priority one.
The primary objective is survival. No single trade or series of trades should ever threaten the ability to continue trading. Protecting capital ensures you remain in the game long enough for a statistical edge to materialize.
Never risk more than 1–2% of total trading capital on any single position. This limit is calculated from the distance between entry price and stop-loss, adjusted dynamically via position sizing.
Example: With a $100,000 account and a 1% risk limit, maximum loss per trade = $1,000. If the stop-loss is 50 ticks away, position size is adjusted accordingly.
Every potential trade must offer at least twice the reward relative to the risk taken. A 1:2 R-multiple means a winning trade returns twice the amount risked, allowing a strategy to remain profitable even with a win rate below 50%.
Positive expectancy = (Win Rate × Average Win) – (Loss Rate × Average Loss) > 0
Position size is calculated automatically based on account size, predefined risk percentage, and current market volatility (e.g., ATR or standard deviation). Higher volatility → smaller positions to maintain consistent dollar risk.
Strict drawdown thresholds are enforced: daily, weekly, and overall. Exceeding a predefined limit (e.g., 5% weekly or 15–20% total) triggers an immediate pause in trading until conditions stabilize or a review is completed.
Total market exposure is capped across all open positions. Correlated instruments (e.g., ES and NQ) are treated as a single risk unit to prevent over-concentration in one market regime.
Every trade enters with a predefined, non-negotiable stop-loss placed immediately upon execution. Averaging into losing positions or moving stops further away is prohibited.