Risk Management
Protect your capital with proven risk strategies
Built-in Risk Management
All strategies on this platform include automatic risk management features. You don't need to manually configure stop losses or position sizing - it's handled for you.
Why Risk Management Matters
Risk management is the difference between gambling and trading. Even the best strategy will have losing trades. What matters is surviving those losses to capture the wins.
The Math of Losses
- • Lose 10% → Need 11% gain to recover
- • Lose 25% → Need 33% gain to recover
- • Lose 50% → Need 100% gain to recover
- • Lose 75% → Need 300% gain to recover
Losses are asymmetric - preventing them is easier than recovering.
Position Sizing Explained
Position sizing determines how much money to put into each trade. It's arguably the most important risk management tool.
Position Sizing Formula
Example:
- • Account: $10,000
- • Risk per trade: 2% = $200
- • Stock price: $50, Stop-loss: $48 (stop distance = $2)
- • Position size: $200 ÷ $2 = 100 shares
Why This Works
Position Size Calculator
Calculate the right position size based on your risk tolerance
Calculation Results
Over-concentration Warning
This position is 60% of your portfolio. Consider reducing to max 25% for better diversification.
Formula Used
= ($10,000 × 2%) ÷ $5.00
= 40 shares
Stop-Loss Orders
A stop-loss is an automatic order that sells your position if the price drops to a certain level. It's your emergency brake.
Fixed Stop-Loss
Set at a specific price or percentage below entry.
ATR-Based Stop
Dynamic stop based on volatility (Average True Range).
Support-Based Stop
Placed just below a key support level.
Trailing Stop
Moves up with price, locking in profits.
Never Move a Stop Lower
Profit Targets
Profit targets are the opposite of stop-losses - they automatically sell when price reaches a profitable level. They lock in gains.
Risk/Reward Ratio
The ratio between your potential profit and potential loss. A 2:1 ratio means you're targeting twice as much profit as you're risking.
Risk/Reward Visualizer
Visualize your potential profit vs risk and calculate expected value
Expected Value Per Trade
+$2.50
(+2.50% per trade)
This setup has positive expected value. Profitable long-term!
After 100 Trades
Wins (50)
+$500
Losses (50)
-$250
Why R:R Matters
With a 2:1 R:R ratio, you only need to win 33% of trades to break even. Higher R:R ratios give you more room for error while still being profitable.
Understanding Drawdown
Drawdown is the decline from a peak to a trough in your account value. Max drawdown shows the worst loss you would have experienced.
Drawdown Example
Can You Handle It?
Drawdown Simulator
See how consecutive losses compound and affect recovery
Loss vs Recovery Required
Account Balance Over Time
Simulation Results
Final Balance
$10,000
Total Drawdown
-0%
Amount Lost
-$0
To Recover
+0%
Key Insight
With 5% risk per trade, 5 consecutive losses creates a 22.6% drawdown requiring 29.2% gains to recover. Consider reducing risk per trade.
The 2% Rule
One of the most popular risk management rules: Never risk more than 2% of your account on a single trade.
2% Rule in Action
| Account Size | Max Risk (2%) | 10 Losses = ? |
|---|---|---|
| $5,000 | $100 | -18% (still have $4,100) |
| $10,000 | $200 | -18% (still have $8,200) |
| $50,000 | $1,000 | -18% (still have $41,000) |
Even after 10 consecutive losses (rare!), you still have 82% of your account to recover.
Conservative Alternative: 1% Rule
Diversification Basics
Diversification means not putting all your eggs in one basket. Spread risk across different stocks and sectors.
Poor Diversification
- • 100% in one stock
- • All tech stocks
- • Correlated positions
- • One sector exposure
Good Diversification
- • 5-10 uncorrelated positions
- • Multiple sectors
- • Mix of strategies
- • Different risk profiles
Emotional Discipline
The hardest part of risk management isn't math - it's psychology. Even with perfect rules, emotions can sabotage your trading.
Fear
Closing positions too early, missing good entries
checkTrust your backtest results and predefined rules
Greed
Oversizing positions, moving profit targets further
checkStick to your risk limits, take profits as planned
Revenge Trading
Doubling down after losses to "get it back"
checkWalk away after 2-3 losses, revisit tomorrow
FOMO
Chasing moves that already happened
checkWait for your setup, there will be more opportunities
Overconfidence
Ignoring risk after winning streak
checkKeep position sizes consistent regardless of recent results
How Our Built-in Risk Management Works
Every strategy on this platform automatically includes professional-grade risk management. Here's exactly what happens behind the scenes:
ATR-Based Stop Loss
Stop loss is automatically set at 2× ATR below your entry price. ATR (Average True Range) measures volatility, so stops adapt to each stock's behavior.
Take Profit Targets
Profit targets are set at 4× ATR above entry - a 2:1 reward-to-risk ratio. Positions automatically close when targets are hit.
Trailing Stop
As price rises, the stop loss automatically trails up at 1.5× ATR below the highest price. This locks in profits while letting winners run.
Volatility-Adjusted Position Sizing
Position size is calculated to risk only 2% of portfolio per trade. Volatile stocks get smaller positions; stable stocks get larger positions.
Drawdown Circuit Breaker
If your portfolio drops 10% from its peak, all trading stops automatically. After 20 bars (trading periods), the system resets and can resume trading.
Maximum Position Size
bookmarkKey Takeaways
- check_circleNever risk more than 1-2% of your account per trade
- check_circleAlways use stop-losses - never trade without an exit plan
- check_circleAim for at least 2:1 reward-to-risk ratio
- check_circleKnow your max drawdown tolerance before you trade
- check_circleEmotions are your biggest enemy - follow your rules
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