Trading Risk Management: The Boring Skill That Actually Makes You Money

I know traders with 70% win rates who lose money.

I know traders with 40% win rates who are consistently profitable.

The difference? Risk management.

It's the most boring topic in trading. It's also the only one that matters.

The Math Nobody Wants to Hear

Let me show you some math.

Trader A:

• Win rate: 70%
• Average win: $100
• Average loss: $300
• Expected value: (0.7 × $100) - (0.3 × $300) = $70 - $90 = -$20

Trader B:

• Win rate: 40%
• Average win: $300
• Average loss: $100
• Expected value: (0.4 × $300) - (0.6 × $100) = $120 - $60 = +$60

Trader A wins more often but loses money. Trader B loses more often but makes money.

Win rate doesn't matter. Risk/reward matters.

The Only Risk Rules You Need

After 10 years, I've boiled risk management down to a few simple rules.

Rule 1: Never Risk More Than 1-2% Per Trade

This is the foundation. Everything else builds on this.

If you have a $10,000 account, maximum risk per trade is $100-200.

Not position size. Risk. The amount you'll lose if your stop is hit.

Why 1-2%? Because losing streaks happen. With 1% risk, you can lose 10 trades in a row and only be down 10%. You're still in the game.

With 10% risk per trade, 3 losses in a row and you're down 30%. Panic sets in. Bad decisions follow.

Rule 2: Always Use Stop Losses

No exceptions. Ever.

"But what if it comes back?"

It might. It might not. And while you're hoping, you're risking catastrophic loss.

I've seen traders turn small losses into account-ending disasters because they didn't use stops.

Set your stop before you enter. Make it part of the trade setup. With dashpull, I build stops into my conditional orders. Entry and stop are one package.

Rule 3: Size Based on Stop Distance

Position size should be calculated from your stop, not the other way around.

Wrong approach: "I'll buy $5,000 worth and put my stop... somewhere."

Right approach: "My stop is 2% below entry. I'm willing to risk $100. So my position size is $5,000."

The formula: Position Size = Risk Amount ÷ Stop Distance %

If I'm risking $100 and my stop is 2% away, position size is $100 ÷ 0.02 = $5,000.

Rule 4: Risk/Reward Minimum 1:2

I don't take trades with less than 1:2 risk/reward.

If I'm risking $100, my target must be at least $200.

Why? Because even with a 40% win rate, 1:2 risk/reward is profitable: (0.4 × $200) - (0.6 × $100) = $80 - $60 = +$20

With 1:1 risk/reward, you need >50% win rate to be profitable. That's hard to achieve consistently.

Rule 5: Maximum Daily/Weekly Loss Limits

Bad days happen. The key is not letting a bad day become a bad week, or a bad week become a bad month.

My limits:

• Daily loss limit: 3% of account
• Weekly loss limit: 7% of account

If I hit these, I stop trading. Period. Come back tomorrow/next week with a clear head.

Position Sizing Methods

There are different ways to size positions. Here are the main ones:

Fixed Dollar Risk

Risk the same dollar amount on every trade.

Example: Always risk $100, regardless of account size.

Pros: Simple. Consistent. Cons: Doesn't scale with account growth.

Fixed Percentage Risk

Risk the same percentage of account on every trade.

Example: Always risk 1% of current account value.

Pros: Scales with account. Compounds gains. Cons: Slightly more complex calculation.

I use fixed percentage. As my account grows, my position sizes grow. As it shrinks, they shrink. Automatic adjustment.

Kelly Criterion

Mathematical formula for optimal position sizing based on win rate and risk/reward.

Pros: Theoretically optimal. Cons: Requires accurate win rate estimation. Aggressive. Can lead to large drawdowns.

I don't use full Kelly. Too aggressive. Half-Kelly is more practical.

The Psychology of Risk

Risk management isn't just math. It's psychology.

The Pain of Loss

Losses hurt more than wins feel good. This is called loss aversion.

A $100 loss feels worse than a $100 win feels good. This causes irrational behavior:

• Holding losers too long (hoping they'll come back)
• Cutting winners too early (locking in the good feeling)

Proper position sizing reduces the emotional impact. If you're risking 1%, a loss is annoying, not devastating.

The Revenge Trade

You just lost money. You're angry. You want it back. NOW.

So you take a bigger position on the next trade. To make it back faster.

This is revenge trading. It's how small losses become big losses.

My rule: After a loss, my next trade is the same size or smaller. Never bigger.

The Winning Streak Trap

You've won 5 trades in a row. You're invincible. Time to size up!

No. Winning streaks end. Often suddenly. If you sized up at the peak, the reversal hurts extra.

Stick to your sizing rules. Win or lose, the rules don't change.

Risk Management in Practice

Here's my actual risk management workflow:

Before the Trade

1. Identify the setup
2. Determine stop loss level (based on chart, not arbitrary)
3. Calculate stop distance in percentage
4. Calculate position size: Risk Amount ÷ Stop Distance
5. Verify risk/reward is at least 1:2
6. Enter the trade with stop already set

During the Trade

1. Don't move stop loss further away (ever)
2. Consider moving stop to breakeven after 1R profit
3. Trail stop as trade moves in my favor
4. Don't add to losing positions

After the Trade

1. Record the trade in journal
2. Note what worked and what didn't
3. Check if daily/weekly limits are approaching
4. Adjust future trades if needed

Common Risk Management Mistakes

Mistake 1: No Stop Loss

"I'll watch it and exit manually."

You won't. You'll freeze. You'll hope. You'll lose more than you should.

Always use stops.

Mistake 2: Moving Stops Further Away

"I'll just give it a little more room..."

This is how small losses become big losses. Your stop was set for a reason. Honor it.

Mistake 3: Risking Too Much

"This setup is perfect! I'll risk 10%!"

No setup is perfect. Every trade can lose. Risk 1-2%, always.

Mistake 4: Ignoring Correlation

You have 5 long positions in 5 different altcoins. "Diversified!"

No. If Bitcoin dumps, all 5 will dump. You're not diversified. You're 5x exposed to the same risk.

Consider correlation when sizing multiple positions.

Mistake 5: No Daily Limits

One bad day can undo weeks of profits.

Set daily loss limits. When you hit them, stop. Come back tomorrow.

Risk Management with Automation

dashpull helps me enforce risk management automatically.

Built-in stops: Every conditional order includes a stop loss. Entry and stop are one package.

Position sizing: I calculate size before setting up the order. The system executes the exact size.

No emotional override: Once the order is set, I can't panic and remove the stop. The system executes as defined.

This removes my ability to make emotional risk management mistakes. The rules are enforced automatically.

The Bottom Line

Risk management is boring. It's not sexy. Nobody makes YouTube videos about position sizing.

But it's the difference between traders who survive and traders who blow up.

The rules are simple:

• Risk 1-2% per trade
• Always use stops
• Size based on stop distance
• Minimum 1:2 risk/reward
• Daily and weekly loss limits

Follow these rules, and you'll survive long enough to develop real skill. Ignore them, and you'll blow up. It's not a matter of if, but when.

dashpull helps me enforce these rules automatically. Stops built in. Sizes calculated. Emotions removed.

Risk management isn't optional. It's the foundation everything else is built on.

Ready to trade with proper risk management? Try dashpull →